Q2 2025 Stanley Black & Decker Inc Earnings Call

Unknown Executive: 2025 Stanley Black & Decker Earnings Conference Call.

Shannon: My name is Shannon and I will be your operator for today's call. At this time all participants are in a listen-only mode.

Shannon: Later, we welcome you to the question and answer session. Please note that this conference is being recorded.

Welcome to the second quarter 2025 Stanley 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 a listening mode.

Later, we welcome that the question and answer session.

Dennis Lange: I will now turn the call over to the Vice President of Investor Relations, Dennis Lange. Mr. Lange, you may begin. Thank you, Shannon. Good morning, everyone. And thanks for joining us for Stanley Black & Decker's 2025 second quarter webcast.

Please note that this conference has been recorded.

I will now turn the call over to the vice president of Investor Relations, Dennis Lange. Mr. Lange, you may begin.

Dennis Lange: Here today, in addition to myself, is Don Allen, President and CEO, Chris Nelson, COO, EVP, and President, Tools & Outdoor, and Pat Hallinan, EVP and CFO. Our earnings release, which was issued earlier this morning, and a supplemental presentation, which we'll refer to, are available on the IR section of our website. A replay of this morning's webcast will also be available, beginning at 11 a.m. today.

Thank you, Shannon. Good morning, everyone, and thanks for joining us for Stanley Black & Decker's Q2 2025 earnings call webcast. In addition to myself, we have Don Allan, President and CEO; Chris Nelson, COO and EVP of Tools and Outdoor; and Pat Hallinan, EVP and CFO. Our earnings release was issued earlier this morning, along with a supplemental presentation.

Dennis Lange: This morning, Don, Chris, and Pat will review our 2025 second quarter results and various other matters, followed by a Q&A session. Consistent with prior webcasts, we are going to be sticking with just one question per caller, and as we normally do, we will be making some forward-looking statements during the call 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 the actual results may materially differ from any forward-looking statements that we might make during the call.

Dennis Lange: We direct you to the cautionary statements in the 8K that we 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.

Which we will refer to are available on the IR section of our website. A replay of this morning's webcast will also be available beginning at 11:00 a.m. today this morning, Don Chris, and Pat will review our 2025 second quarter results and various other matters, followed by a Q&A session consistent with prior webcasts. We are going to be sticking with, just 1 question per caller. And as we normally do, we'll be making some forward-looking statements. During the call 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 the 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 we filed with our press release and in our most recent, 34 act filing.

Dennis Lange: For applicable reconciliations to the related GAAP financial measures and additional information, please refer to the appendix of the supplemental presentation and the corresponding press release, which are available on our website under the IRC.

Donald Allan: I'll now turn the call over to our President and CEO, Don Allen. Thank you, Dennis, and good morning, everyone.

Additionally, we may also reference non-GAAP financial measures during the call, where applicable. Reconciliations to the related GAAP financial measures and additional information can be found in the appendix of the supplemental presentation and the corresponding press release, which are available on our website under the IR section. I'll now turn the call over to our President and CEO, Donald Allan.

Donald Allan: As all of you are aware, this will be my last earnings call for Stanley Black & Decker, given our recent announcement that Chris Nelson will become the CEO effective October 1st. I want to begin by sincerely thanking our shareholders, employees, and customers for your continued trust and support throughout my tenure. Your commitment has been foundational to our progress and success. especially over the last three years. I believe now is the right moment to initiate this leadership transition, as I'm excited about how the team will build upon the significant company-wide transformation progress we have made since the summer of 2022.

Thank you, Dennis, and good morning, everyone.

As all of you are aware, this will be my last earnings call for Stanley Black & Decker. Given our recent announcement that Chris Nelson will become the CEO effective October 1st

I want to begin by sincerely thanking our shareholders, employees, and customers for your continued trust and support throughout my tenure.

Your commitment has been foundational to our progress and success.

Especially over the last 3 years.

Donald Allan: So in full alignment and with the support of our board of directors, I will move into the executive chair role, where I'll remain fully committed to supporting Chris and the company. I couldn't be more confident that Stanley Black & Decker is on a firm foundation for future growth and in excellent hands under Chris's leadership.

I believe now is the right moment to initiate this leadership. Transition as I'm excited about how the team will build upon the significant companywide transformation, progress, we have made since the summer of 2022,

so, in full alignment and with the support of our board of directors,

I will move into the executive chair role where I'll remain fully committed to supporting Chris and the company, I couldn't be more confident that Stanley Black & Decker is on a firm foundation for future growth.

Donald Allan: As we move through the final year of our multi-year supply chain transformation, and I reflect on the progress over the past three years, We have significantly advanced the vision we set forth during the spring of 2022. We stabilized, simplified, and focused the organization. As a result, we have and are continuing to improve our cost position, capitalize on our core strengths, and prioritize investments designed to accelerate organic growth. We have assembled a strong management team with the right people in the right roles across the organization. blending experience in our business and the industry with an infusion of new perspectives from experienced dynamic We streamlined our portfolio of iconic brands and businesses by divesting $2.6 billion of revenue.

And an excellent. Hands under Chris's leadership.

as we move through the final year of our multi-year, supply chain transformation, and I reflect on the progress over the past 3 years,

We have significantly Advanced division, we set forth during the Spring of 2022.

We stabilized simplified and focus the organization.

As a result, we continue to improve our cost position.

Capitalize on our core strengths and prioritize investments designed to accelerate organic growth.

We have assembled a strong management team with the right people in the right roles across the organization.

Blending its experience in our business and the industry with an infusion of new perspectives from experienced dynamic talent.

Donald Allan: We have honed our focus on the core strengths of our portfolio of tools and outdoor and engineered fast food, which are both well positioned in very attractive industries that are forecast to grow over the long term. Finally, we have significantly improved our cost structure and strengthened our balance sheet through solid execution against our operational priorities set in mid-2022. Our simplified and more nimble supply chain is enabling us to deliver improved profitability, better service for our customers and end-users, and sustainable market share gains with iconic brands such as DeWalt. And today, the capabilities we built through our supply chain transformation are supporting the company as we navigate tariffs with agility and speed.

We streamlined our portfolio of iconic Brands and businesses by divesting 2.6 billion dollars of Revenue.

We have honed our focus on the core strengths of our portfolio of tools and outdoor and engineered batsmen, which are both well positioned in very attractive industries that are forecast to grow over the long term.

Donald Allan: As we continue to return our company to sustainable organic growth, we are deeply committed to fostering a growth-oriented culture within the organization. By enhancing our strong foundation of operational excellence and building a sustainable productivity engine, we are enabling resource allocation to fund future growth. Our investments are designed to continue driving innovation within our categories, accelerate organic growth through targeted local market initiatives, and deliver new value added solutions to our. Stanley Black & Decker has long been an innovator and a growth-oriented company. We have the team to take this company forward.

Cost structure and strengthened our balance sheet through solid execution against our operational priorities set in mid-2022. Our simplified and more nimble supply chain is enabling us to deliver improved profitability, better service for our customers and end users, and sustainable market share gains with iconic brands such as DeWalt. Today, the capabilities we built through our supply chain transformation are supporting the company as we navigate tariffs with agility and speed.

As we continue to return our company to sustainable organic growth, we are deeply committed to fostering a growth-oriented culture within the organization.

By enhancing our strong foundation of operational excellence and building a sustainable productivity engine.

We are enabling resource allocation to fund future growth.

Our investments are designed to continue driving Innovation within our categories. Accelerate organic growth through targeted local market initiatives and deliver new value added solutions to our customers.

Donald Allan: I am thrilled to have the opportunity to continue supporting the company and to see this next chapter of growth unfold in the quarters ahead while we close out the final phase of the supply chain transformation in 2025, continue to drive towards our margin goal of 35 plus percent, and achieve our deleveraging goal in 2026 via additional modest streamlining of the existing businesses.

Family Black & Decker has long been an innovator and a growth-oriented company. We have the team to take this company forward. I am thrilled to have the opportunity to continue supporting the company and to see this next chapter of growth unfold in the quarters ahead. While we close out the final phase of the supply chain transformation in 2025, we will continue to drive towards our margin goal of 35+ percent and achieve our deleveraging goal in 2026.

Donald Allan: Now turning to our second quarter 2025. Revenue was $3.9 billion, down 2% versus the previous year, and down 3% organically. The quarter was impacted by a slow outdoor buying season and non-typical shipment disruptions related to our customers' reactions to tariffs, which contributed to a dynamic operating environment. Against that backdrop, we delivered solid second quarter revenue with continued growth of our DeWalt brand supported by relatively resilient professional demand. Encouragingly, US tools and user demand was resilient and stayed relatively consistent on a total dollar basis following our price First half organic revenue was down 1%, and we believe it will remain relatively flat in the second half as well.

The additional modest streamlining of the existing businesses portfolio.

Now, turning to our second quarter 2025 performance,

Revenue was 3.9 billion dollars down 2% versus the previous year and down, 3%, organically.

The quarter was impacted by a slow outdoor buying season and non-typical shipment disruptions related to our customers' reactions to tariffs, which contributed to a dynamic operating environment.

Against that backdrop, we delivered solid second quarter revenue with continued growth of our DeWalt brand, supported by relatively resilient professional demand.

encouragingly us tools and user demand was resilient and stayed relatively consistent on a total dollar basis following our pricing thesis,

Donald Allan: The second quarter adjusted gross margin rate was 27.5%. down versus last year due to a three point gross margin impact from tariffs and lower volume. This was partially offset by supply chain transformation efficiencies and the partial impact on our initial round of price which became effective within the second quarter. Despite market volatility, adjusted gross margin for the first half was 28.9%, just 20 basis points behind the prior year.

First half organic Revenue was down 1% and we believe it will remain relatively flat in the second half as well.

The second quarter, adjusted gross margin rate was 27.5% down versus last year due to a 3-point gross margin impact from tariffs and lower volume.

Donald Allan: As you will hear from the team today, the organization is remaining focused on executing a robust plan designed to mitigate We plan to leverage supply chain moves and targeted pricing actions to improve our gross margin in the coming quarter. We believe Q2 to be the low point for gross margins, barring any new large changes to government policy. We view these initiatives in conjunction with capturing the remaining supply chain transformation savings as the primary drivers to return our adjusted gross margin trajectory toward our goal of 35 plus. Second quarter adjusted EBITDA margin was 8.1%, down 260 basis points versus the prior year, reflecting the gross margin change and our growth investments, which were partially offset by targeted cost control measures.

This was partially offset by supply chain transformation. Efficiencies and the partial impact on our initial round of price actions which became effective within the second quarter despite Market volatility, adjusted gross margin for the first half was 28.9% just 20 basis points behind the prior year.

As you will hear from the team today, the organization is remaining focused on executing our robust plan designed to mitigate terrorism.

We plan to leverage supply, chain moves, and targeted pricing actions to improve our gross margin. In the coming quarters.

We believe Q2 to be the low point for gross margins, barring any new large changes to government policies.

we view these initiatives and conjunction with capturing the remaining supply, chain transformation savings as the primary drivers to return, our adjusted gross margin trajectory toward our goal of 35 Plus percent

Donald Allan: Adjusted earnings per share was $1.08, inclusive of a discrete tax benefit. Second quarter free cash flow was $135 million, a strong result considering the operational impact of new trade policy.

Second quarter adjusted EVA de margin was 8.1%, down 260 basis points versus the prior year, reflecting the gross margin change and our growth investments, which were partially offset by targeted cost control measures.

Adjusted earnings per share was a $18 inclusive of a discrete tax benefit.

Donald Allan: Overall, a very solid quarter in a turbulent environment, with significant credit to the global Stanley Black & Decker team, as together we all continue to make meaningful progress on what is within our control. Thank you for your support.

Second quarter of free. Cash flow was 135 million. A strong result, considering the operational impact of new trade policies?

Overall a very solid quarter and the turbulent environment with significant credit to the global sanley Black & Decker team. As together, we all continue to make meaningful progress on what is within our control.

Christopher Nelson: I will now pass it to Chris, who will review the business segment performance and provide more context on how we successfully execute our strategy in a volatile trade environment. Thank you, Don, and good morning, everyone.

Thank you for your support.

I will now pass it to Chris, who will review the business segment performance and provide more contacts on how we successfully execute our strategy and a volatile trade environment.

Christopher Nelson: On behalf of the entire Stanley Black & Decker team, I would like to begin by expressing our appreciation to Don for his leadership and dedication to the company over the past 26 years. His deep connection with our customers and brands, coupled with his unwavering commitment to our global team, has been instrumental in positioning the company for lasting success. I'd also like to personally thank him for his partnership over the past two years and his help preparing me for this moment.

Christopher Nelson: Looking ahead to October 1st, I am honored and excited to become CEO of Stanley Black & Decker, an iconic American company with a proud heritage and a bright future. The opportunity to work with our teams around the world to unlock the tremendous potential of our brands and drive share gain in the marketplace is energizing, and I look forward to doing so in collaboration with our valued channel partners. Now, turning to our second quarter operating performance, our top priority continues to be serving our customers and accelerating initiatives to mitigate tariff-related headwinds, all while keeping our long-term financial objectives in sight.

For his partnership over the past two years and for helping prepare me for this moment. Looking ahead to October 1st, I am honored and excited to become CEO of Stanley Black & Decker, an iconic American company with a proud heritage and a bright future. The opportunity to work with our teams around the world to unlock the tremendous potential of our brands and drive share gain in the marketplace is energizing. I look forward to doing so in collaboration with our valued channel partners.

Christopher Nelson: Beginning with tools and outdoor. Revenue for the quarter was approximately $3.5 billion, representing a 2% decline as compared to the second quarter of 2024. Organic revenue decreased by 3%. Price realization of 2% represents a partial quarter benefit from our late April U.S. prices. Volume was down 5% due to a slow outdoor buying season and tariff-related shipment disruption. We were encouraged to see continued top-line expansion of DeWalt professional products as pro-demand remained relatively resilient. This marks over two years of consistent growth from our powerhouse DeWalt brand, which year-to-date has grown in every product line and region.

Now, turning to our second quarter operating performance, our top priority continues to be serving our customers and accelerating initiatives to mitigate tariff-related headwinds, all while keeping our long-term financial objectives in sight.

Beginning with tools and outdoor revenue for the quarter was approximately 3.5 billion dollars. Representing a 2% decline as compared to the second quarter of 2024. Organic Revenue decreased by 3%, price realization of 2% represents a partial quarter of benefit from our late. April us price actions volume was down 5% due to a slow outdoor buying season and tariff related. Shipment disruptions, we were encouraged to see continued Topline expansion of DeWalt professional products as prodemand remained. Relatively resilient this marks over 2 years of consistent growth, from our Powerhouse to

Christopher Nelson: We clearly see the benefits from our prioritized innovation, marketing, and activation investment. Our growth and share gain strategy is underpinned by accelerating DeWalt's success while we work to restore consistent share gain in Stanley & Crafts.

Brand, which year to date has grown in every product line and region.

We clearly see the benefits from our prioritized, Innovation marketing and activation Investments.

Christopher Nelson: Adjusted segment margin was 8%, a 240 basis point decline as compared to the second quarter of last year. The change was attributable to the impact from tariffs, lower volume, and investments in growth initiatives, partially offset by the supply chain transformation efficiencies, price and cost control. Shifting to performance by product line, Power Tools' organic revenue growth of 1% was driven by price, resilient product demand, and solid performance in our key investment markets. Hand Tools' organic revenue decline of 5% was primarily attributable to tariff-related shipment disruptions in North America. Outdoor organic revenue declined 7% related to a slow buying season.

Our growth and share gain strategy is underpinned by accelerating to Walt's success. While we work to restore consistent share gain in Stanley, the Craftsman adjusted segment margin was 8%, a 240 basis point decline compared to the second quarter of last year. The change was attributable to the impact from tariffs, lower volume, and investments in growth initiatives, partially offset by the supply chain transformation efficiencies, price, and cost control.

Shifting to Performance, byproduct line, power tools, organic Revenue. Growth of 1% was driven by Price resilient Pro demand and solid performance in our key investment markets and tools organic Revenue. Decline of 5% was primarily attributable to tariff related, shipment disruptions in North America.

Christopher Nelson: Demand has picked up in July, but our expectation is that 2025 will carry a modest decline near our minus 1% year-to-date performance.

Christopher Nelson: Now, Evaluating the Tools in Outdoor Regions. In North America, organic revenue declined by 4%, driven by factors consistent with the segment's overall performance. Channel inventory remained in line with historical levels. POS dollar trends in tools remained stable, while outdoor POS was slow to start and improved throughout the quarter.

Outdoor organic Revenue declined, 7% related to a slow buying season demand has picked up in July. But our expectation is that 2025 will carry a modest decline near our minus 1% year-to-date performance. Now, evaluating the tools and outdoor regions in North America, organic Revenue.

Christopher Nelson: Notably, following the recent price increases, we did not observe a shift in buying trends, which signals relatively healthy end demand. In Europe, organic revenue declined by 1%. Growth in the UK in key investment markets, such as Central and Eastern Europe, helped offset softer market demand in Germany and Italy.

Christopher Nelson: The rest of the world delivered 1% organic growth, driven by Latin America, Australia, New Zealand, and the Middle East, led by strong performance from our professional brand.

Christopher Nelson: Now let's transition to engineered fastening. On a reported basis, second quarter revenue was down 2% versus prior year and 1% on an organic basis. 1% of price realization and 2% of currency favorability was more than offset by 2% of volume declines and a 3% impact related to the previously disclosed product line transfer to the tools and outdoor segment.

Declined by 4% driven by factors consistent with the segments overall performance Channel inventory remained in line with historical levels, POS dollar Trends and tools remain stable. While outdoor POS was slow to start and improved throughout the quarter. Notably following the recent price increases, we did not observe a shift in buying Trends which signals relatively healthy and demand in Europe. Organic Revenue decline by 1% growth in the UK. In key investment markets, such as Central and Eastern, Europe helped offset, softer market demand in Germany and Italy. The rest of world delivered, 1% organic growth driven by Latin America. Australia New Zealand and the Middle East led by strong performance from our professional brands.

Now, let's transition to engineered fastening on a reported basis. Second quarter Revenue was down 2% versus prior year.

Christopher Nelson: The automotive business experienced a mid-single-digit organic decline, primarily due to reduced production schedules and restrained capital expenditures by OEMs. General industrial fasteners' organic revenue declined high-single-digit The aerospace business had another strong quarter with over 20% organic growth driven by strong performance in fasteners and fittings products. This business has achieved a new high of $400 million annualized run rate revenue with a solid multi-year backlog and growth outlook. The engineer fastening adjusted segment margin rate was 10.8% for the quarter. This is a decline from the previous year, largely due to softness in the higher margin automotive fastening.

And 1% on an organic basis, 1% of price realization, and 2% of currency. Favorability was more than offset by a 2% decline in volume and a 3% impact related to the previously disclosed product line transfer to the Tools and Outdoor segment.

The automotive business experienced a mid single-digit, organic decline, primarily due to reduced production, schedules and restrained, Capital expenditures by oems General industrial, Fasteners organic Revenue, declined, High single digits, the Aerospace business had another strong quarter with over 20%, organic growth driven by strong performance in Fasteners and fittings products.

Blog and growth Outlook the engineered fasting. Adjusted segment margin rate was 10.8% for the quarter.

Christopher Nelson: In summary, with focused execution, our teams accelerated cost control measures and adjustments to our supply chain to neutralize the impacts from tariffs as quickly as possible within the period. Implementation of our robust and flexible plans to mitigate tariffs is ongoing as we navigate this dynamic operating environment.

This is a decline from the previous year, largely due to softness in the higher margin Automotive. Fasteners

In summary, with focused execution, our teams accelerated cost control measures and adjustments to our supply chain to neutralize the impacts from tariffs as quickly as possible within the period.

Christopher Nelson: We have entered the final innings of our multi-year supply chain transformation. Successfully completing the transformation this year remains a top priority and is fundamental to optimizing our cost structure, advancing customer-focused innovation, and driving our growth initiatives. These efforts are all aimed towards delivering profitable organic growth and sustainable market share gains. With respect to cost management, we are continuing to execute a comprehensive series of initiatives expected to deliver approximately $2 billion in pre-tax run rate cost savings, with $1.5 billion attributable to improvements within our supply chain. We have clearly identified the principal sources of incremental savings and are making steady progress towards our full year 2025 target of $500 million in cost reduction.

Implementation of our robust and flexible plans to mitigate tariffs is ongoing as we navigate. This Dynamic operating environment.

We have entered the final innings of our multi-year supply chain transformation.

Successfully completing the transformation. This year remains a top priority and is fundamental to optimizing our cost structure advancing. Customer focused Innovation and driving our growth initiatives.

These efforts are all aimed towards delivering profitable organic growth and sustainable market share gains.

With respect to cost management, we are continuing to execute a comprehensive series of initiatives expected to deliver approximately $2 billion in pre-tax run rate cost savings, with $1.5 billion attributable to improvements within our supply chain.

Christopher Nelson: In the second quarter, we achieved approximately $150 million in pre-tax run rate cost savings, bringing our total savings to approximately $1.8 billion since the program's inception.

Christopher Nelson: We remain committed to strengthening our culture of operational excellence and building our sustainable productivity engine. These efforts are essential to further improving customer fill rates, funding growth investments, and achieving our long-term goal of maintaining an adjusted gross margin of 35% or higher.

We have clearly identified the principal sources of incremental savings and are making steady progress towards our full-year 2025 target of $500 million in cost reductions. In the second quarter, we achieved approximately $150 million in pre-tax run rate cost savings, bringing our total savings to approximately $1.8 billion since the program's inception.

We remain committed to strengthening our culture of operational excellence and building our sustainable productivity engine.

Christopher Nelson: I will now take a moment to highlight a pro-focused innovation we recently introduced. As a leader in total job site solutions, DEWALT is advancing its construction technology offerings of productivity solutions for trade contractors with M2. M-Suite is a cloud-based management software which improves coordination between building information modeling, fabrication, and field construction teams. M-Suite helps users track, manage, and share data throughout the entire lifecycle of a construction project. We introduced the M-Suite Hangars Automation Tool in May as one of three product offerings on the platform. This software solution redefines how our targeted mechanical, electrical, plumbing, and industrial contractors approach hangar layout and modeling.

These efforts are essential to further, improving customer fill rates funding growth Investments. And achieving our long-term goal of maintaining an adjusted gross margin of 35% or higher.

I will now take a moment to highlight a pro focused Innovation. We recently introduced

As a leader in total job site Solutions, DeWalt is advancing its construction technology, offerings of productivity solutions for trade contractors, with M Suite.

Muite is a cloud-based management software which improves coordination between building information. Modeling fabrication and Field construction, teams M Suite helps users track manage and share data throughout the entire life cycle of a construction project. We introduced the M Suite hangers automation tool in May as 1 of 3 product offerings on the platform. This software solution redefines how

Christopher Nelson: It delivers significant efficiency improvements as they route building systems like pipes, ducts, conduits, and cable trays. Early adopters of M-Suite Hanger software are already reporting remarkable gains in productivity. For instance, what traditionally took 10 manual steps and a disproportionate amount of time within the Building Information Modeling Project is now a single automated step. This system simultaneously adjusts to building system model changes by adding or removing hangars and rapidly creates simple or complex configurations. Additionally, it can generate builds of material for fabrication, streamlining, hanger installation. These functionalities enhance accuracy, save important coordination time in the field, and reduce the costly risk of error.

Our targeted mechanical electrical plumbing and Industrial contractors approach, Hangar layout and modeling it. Delivers significant efficiency improvements as they route Building Systems like pipes ducts, conduits and cable trays.

Early adopters of M Suite, hanger software are already reporting remarkable gains in productivity.

For instance, what traditionally took 10 manual steps and a disproportionate amount of time within the building information modeling project is now a single automated step.

Christopher Nelson: This innovative tool enables the user to design their job using DEWALT hardware solutions, including DEWALT anchors and ToughWire. These kinds of comprehensive workflow solutions help DEWALT to win with the professional on commercial and industrial jobs.

This system simultaneously adjusts to building System model changes by adding or removing hangers and rapidly creates simple or complex configurations. Additionally, it can generate bills of material for fabrication. Streamlining hanger installation. These functionalities, enhance, accuracy, save important coordination time in the field and reduce the costly risks of errors.

This innovative tool enables the user to design their job using DeWalt hardware solutions, including DeWalt anchors and tough wire.

Christopher Nelson: We are building a future where technology empowers end-users on every job site to drive productivity with greater accuracy and confidence, while also expanding the breadth and depth of our solution.

Christopher Nelson: As we continue executing with an end-user and customer-first mindset, we are focused on balancing the near-term needs of the business with preserving and delivering long-term growth, share gain, and shareholder value. As we navigate this environment, we're taking the necessary measures to stay on our margin trajectory. Ultimately, a key milestone of success is achieving 35% or greater adjusted gross margin. Consistent with this aim, we are prioritizing our efforts to successfully navigate tariff. As we have previously shared, our tariff mitigation strategy is guided by four key principles. First, our primary commitment is to serve our customers and end-users as we navigate this evolving environment.

These kinds of comprehensive workflow solutions help to Walt to win with the professional on commercial and industrial job sites. We are building a future where technology empowers users on every job site to drive productivity with greater accuracy and confidence while also expanding the breadth and depth of our solutions.

As we continue executing with an end-user and customer-first mindset, we are focused on balancing the near-term needs of the business with preserving and delivering long-term growth, share gain, and shareholder value.

As we navigate this environment, we're taking the necessary measures to stay on our margin trajectory ultimately, a key Milestone of success is achieving 35% or greater adjusted gross margins.

Terrorists.

As we have previously shared our tariff, mitigation strategy is Guided by 4 key principles.

Christopher Nelson: We are collaborating with our customers to develop the optimal product assortment for our end-users given the new landscape. Additionally, we are prioritizing high service levels and supply continuity. Secondly, we are accelerating supply chain adjustments to leverage our North American footprint and attain USMCA compliance rates that are in line with other manufacturing-based industries. Our current plan is expected to reduce our Chinese production for the U.S. to less than 5% by the end of 2026. Third, we are taking a judicious approach to price actions, maintaining a long-term perspective as we make the adjustments necessary to protect our cash flow, EBITDA, and margin structure while supporting investments for growth.

First, our primary commitment is to serve our customers and end users. As we navigate this evolving environment, we are collaborating with our customers to develop the optimal product assortment for our end users given the new landscape.

Additionally, we are prioritizing High service levels and Supply continuity.

Christopher Nelson: Our April price increase was implemented on plan and began contributing during the second quarter. We are in the initial stages of customer discussions and intend to implement a second, more modest increase early in the fourth quarter. Finally, we continue to proactively engage with the U.S. administration to ensure our interests and those of our stakeholders are expressed and considered as they work to achieve their trade-related goals.

Secondly, we are accelerating supply chain adjustments to leverage, our North, American footprint and attain usmca, compliance rates that are in line with other manufacturing based Industries. Our current plan is expected to reduce our Chinese production for the US to less than 5% by the end of 2026. Third, we are taking a judicious approach to price actions. Maintaining a long-term perspective, as we make the adjustments necessary to protect our cash flow ebita and margin structure while supporting Investments for growth.

Our April price increase was implemented on plan and began contributing during the second quarter.

We are in the initial stages of customer discussions and intend to implement a second, more modest increase early in the fourth quarter.

Christopher Nelson: In summary, our disciplined approach positions us to address immediate challenges while building a strong foundation for future growth and returning to our targeted margin trajectory.

Finally, we continue to proactively engage with the US Administration, to ensure our interests. And those of our stakeholders are expressed and considered as they work to achieve their trade related goals.

Patrick Hallinan: I will now pass the call to Pat Hallinan to lay out our financial assumptions for tariffs in our current planning scenario.

In summary. Our discipline approach, positions us to address immediate challenges. While building a strong foundation for future growth and returning to our targeted margin trajectory.

Patrick Hallinan: Thank you, Chris, and good morning, everyone. I would like to emphasize the importance of the strategic countermeasures that we are actively implementing. These coordinated efforts across our global teams are essential to protect our business as we advance towards our long-term financial objectives. Inclusive of growth and margin accretion. We currently estimate the annualized gross tariff cost from policy actions is approximately $800 million excluding mitigation actions. The factors that underpin our cost estimate incorporate the most recent policy changes announced in July and those expected to be enacted within the next few days. These assumptions include 30% Incremental Tariffs on Goods from China 30% on non-USMCA compliant goods from Mexico, over 20% in aggregate on goods from the rest of the world, and 50% Section 232 metal tariff.

I will now pass the call to Pat Hanan to lay out our financial assumptions for tariffs in our current planning scenario.

Thank you, Chris and good morning, everyone.

I would like to emphasize the importance of the strategic countermeasures that we are actively implementing.

These coordinated efforts across our Global teams are essential to protect our business. As we advance towards our long-term Financial objectives, inclusive of growth and margin accretion,

We currently estimate the annualized gross tariff cost from policy actions is approximately $800 million, excluding mitigation actions.

The factors that underpin our cost estimate incorporate the most recent policy changes announced in July and those expected to be enacted within the next few days.

These assumptions include.

30% incremental tariffs on goods from China.

30% on non usmca compliant goods from Mexico.

Patrick Hallinan: However, the impact on our 2025 P&L is expected to be partially mitigated through a combination of ongoing targeted initiatives in addition to strategic pricing measures. Taken together, we currently estimate the net P&L impact for our 2025 to be approximately $0.65, reflecting the timing and costs required to implement mitigation strategies. In this estimate, we have included costs to accelerate the planning and execution of our supply chain initiatives, as well as the anticipated increase in expenses required to manage current rare earth supply constraints. In the appendix, we have included an illustration that is consistent with prior disclosure of our U.S.

over 20% in aggregate on goods from the rest of the world and 50% section, 232 metal tariffs,

However, the impact on our 2025 p&l is expected to be partially mitigated, through a combination of ongoing targeted initiatives. In addition to strategic pricing measures

Taken together, we currently estimate the net p&l impact for our 2025 to be approximately 65 cents. Reflecting the timing and costs required to implement mitigation strategies. In this estimate, we have included costs to accelerate. The planning and execution of our supply chain initiatives, as well as the anticipated increase in expenses, required to manage current Rare. Earth, Supply constraints.

Patrick Hallinan: cost of goods sold by country of origin to assist in modeling sensitivities relative to these assumptions.

Patrick Hallinan: Now to unpack our remaining planning assumptions.

In the appendix, we have included an illustration that is consistent with prior disclosure of our us cost of goods sold by country of origin to assist in modeling sensitivities relative to these assumptions.

Patrick Hallinan: Our earnings outlook for the year includes GAAP earnings per share of $3.45, plus or minus $0.10. Adjusted earnings per share is expected to be approximately $4.65. Pre-tax non-gap adjustments are estimated to range between $205 and $250 million, primarily related to the supply chain transformation and other cost actions that will benefit SG&A. Looking ahead, our planning is based on the generally stable demand trends experienced throughout much of this year. These include relatively strong professional demand, continued relative softness in the DIY and outdoor product lines, and a certain degree of retailer disruptions associated with efforts to optimize sourcing and product assortment in response to tariff.

now, to unpack, our remaining planning assumptions,

Our earnings outlook for the year includes gaap, earnings per share of $3.45 cents plus or minus 10 cents. Adjusted earnings per share is expected to be approximately 4 dollars, 65

Pre-tax non-GAAP adjustments are estimated to range between $205 million and $250 million, primarily related to the supply chain transformation and other cost actions that will benefit SG&A looking ahead. Our planning is based on the generally stable demand trends experienced throughout much of this year.

Patrick Hallinan: These are underpinned by our readiness to respond with agility and speed to changes in the operating and market backdrop.

These include relatively strong professional demand, continued relative softness in the DIY and outdoor product lines, and a certain degree of retailer disruptions associated with efforts to optimize sourcing and product assortments in response to tariffs.

Patrick Hallinan: We anticipate 2025 total company sales to retract slightly as compared to 2024. Year over year, organic revenue is expected to be in line with the total company as price increases are offset by the aforementioned volume pressure. Back half organic revenue is planned to be relatively flat, largely consistent with the performance we delivered in the first half. Our top line elasticity assumptions suggest an approximate one-for-one relationship between price and volume, meaning that each incremental point of price is expected to be offset by a corresponding point of volume decline. Currency is now projected to contribute a positive 1% point, which will be offset by the first quarter comparable impact from the infrastructure divestiture.

The changes in the operating and Market backdrop.

We anticipate 2025 total company sales to retract slightly as compared to 2024.

Year-over-year, organic revenue is expected to be in line with the total company. As price increases are offset by the aforementioned. Volume pressures back, half. Organic revenue is planned to be relatively flat, largely consistent with the performance. We delivered in the first half, our Top Line, elasticity assumptions, suggest an approximate 1 for 1 related between price and volume. Meaning that each incremental. Point of price is expected to be offset by a corresponding point of volume decline.

Patrick Hallinan: Organic revenue for the Global Tools and Outdoors segment is projected to decline approximately one point. The Engineered Fastening segment is anticipated to achieve 1% organic growth driven by sustained momentum in aerospace.

Currency is now projected to contribute a positive 1 percentage point, which will be offset by the first quarter comparable impact from the infrastructure domestic charge.

Organic revenue for the global tools and outdoor segment is projected to decline approximately 1 point.

Patrick Hallinan: Our Supply Chain Transformation Initiative maintains an incremental 2025 cost savings target of $500 million. Back half adjusted gross margin is assumed to deliver year-over-year expansion in both quarters, with the fourth quarter to show slightly stronger performance, taking into account our transformation and tariff mitigation action. Assuming that future tariff announcements lead to only modest adjustments, and the U.S. government makes meaningful progress on rare-earth initiatives.

The engineered fastening segment is anticipated to achieve 1% organic growth, driven by sustained momentum in aerospace.

Our supply chain transformation initiative maintains, an incremental, 2025 cost savings. Target of million dollars.

Patrick Hallinan: We believe we can sustain this positive momentum and adjust the gross margin into 2020.

Patrick Hallinan: We remain dedicated to investing in high-growth, high-return opportunities, and will reinvest over $100 million in 2025 to drive market activation, strengthen our brands, and support commercial expansion. Full year adjusted EBITDA margins are expected to expand year over year on the strength of gross margin supported by the cost actions that we are implementing.

Back half adjusted gross margin is assumed to deliver year-over-year expansion in both quarters with the fourth quarter to show slightly stronger performance, taking into account, our transformation and tariff mitigation actions. Assuming that future tariff announcements lead to only modest adjustments and the US government makes meaningful progress on Rare Earth initiatives. We believe we can sustain this positive momentum and adjusted gross margin into 2026.

We remain dedicated to investing in high-growth, high-return opportunities and will reinvest over $100 million in 2025 to drive market activation, strengthen our brands, and support commercial expansion.

Patrick Hallinan: Other 2025 modeling assumptions, which are relatively similar to prior assumptions, are noted on the slide. In the near term, we anticipate that third quarter organic revenue will present a one percentage point decline as we manage the impact of global tariff disruptions in conjunction with a subdued consumer DIY market environment. For the third quarter, we expect adjusted earnings per share to represent approximately 25% of the full-year adjusted EPS contribution, factoring in a decline in organic revenue balanced with a solid step forward in gross margins.

Full year, adjusted, Evita margins are expected to expand year-over-year on the strength of gross margin supported by the cost actions that we are implementing.

Other 2025 modeling assumptions which are relatively similar to Prior assumptions are noted on the slide.

Patrick Hallinan: With respect to cash flow and capital management, we remain committed to disciplined oversight of working capital and capital expenditure. Targeting approximately $600 million in free cash flow in 2025. This objective is supported by disciplined inventory management with an emphasis on customer order fulfillment alongside prudent expenditure. Cash generation will be utilized to fund our dividend with the remainder intended to be used for debt repayment.

In the near term, we anticipate that third quarter organic revenue will present a 1 percentage point decline as we manage the impact of global tariffs and disruptions in conjunction with the subdued consumer DIY market environment for the third quarter. We expect adjusted earnings per share to represent approximately 25% of the full year. Adjusted EPS contribution, factoring in a decline in organic revenue, balances with a solid step forward in gross margins. With respect to cash flow and capital management, we remain committed to disciplined oversight of working capital and capital expenditures, targeting approximately $600 million in free cash flow in 2025. This objective is supported by disciplined inventory management, with an emphasis on customer order fulfillment, alongside prudent expenditure controls. Cash generation will be utilized to fund our dividend, with the remaining.

Patrick Hallinan: Deleveraging continues to be a top priority, as we are committed to maintaining a strong and resilient balance sheet and working towards achieving less than or equal to 2.5 times net debt to adjust the debit. Our plan to achieve this outcome includes using excess free cash flow and an assumed $500 million to $1 billion in proceeds from portfolio pruning for further debt repair.

Remainder intended to be used for debt repayment.

Patrick Hallinan: To conclude, we are pleased with the performance we have delivered in the first half of the year, responding decisively to external challenges through targeted operational and supply chain adjustments. Underscoring our unwavering commitment to meeting the needs of our end-users and customers. The organization has demonstrated exceptional agility in this environment.

Deleveraging continues to be a top priority. As we are committed to maintaining a strong and resilient balance sheet, we are working towards achieving a net debt to adjusted EBITDA ratio of less than or equal to 2.5 times. Our plan to achieve this outcome includes using excess free cash flow and an assumed $500 million to $1 billion in proceeds from portfolio pruning.

Debt repayment to conclude. We are pleased with the performance. We have delivered in the first half of the year, responding decisively to external challenges through targeted operational and supply chain adjustments. This underscores our unwavering commitment to meeting the needs of our end users and customers.

Donald Allan: The organization's efforts have put us in a position to quickly restore profitability while taking the measures to position Stanley Black & Decker for sustained growth, margin expansion, and long-term value creation.

Donald Allan: Thank you and I will now return the call to dial. Thank you, Pat.

Donald Allan: I am grateful to have had the opportunity to serve as CEO of Stanley Black & Decker and work alongside an extraordinarily talented and resilient team. As I've said many times, Stanley Black & Decker is built on the strength of our people, iconic brands, and a powerful innovation engine. These foundational attributes transcend external market conditions. And I am confident that these traits are what position Stanley Black & Decker to thrive well into the future and generate sustainable long-term growth and value creation.

The organization has demonstrated exceptional agility in this environment. The organization's efforts have put us in a position to quickly restore profitability while taking the measures to position Stanley Black & Decker for sustained growth, margin expansion, and long-term value creation. Thank you, and I will now return the call to Don.

Thank you, Pat. I am grateful to have had the opportunity to serve as CEO of Stanley, Black & Decker, and work alongside an extraordinarily talented and resilient team.

And a powerful Innovation engine.

Donald Allan: We are now ready for Q&A. Thanks, Don.

These foundational attributes transcend external market conditions. I am confident that these traits are what position Stanley Black & Decker to thrive well into the future and generate sustainable long-term growth and value creation.

Shannon: Shannon, we can now start Q&A, please. Thank Thank you.

We are now ready for Q&A. Dennis.

Shannon: To ask a question, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. We ask that you please limit yourself to one question.

Thanks, Don Shannon. We can now start the Q&A, please. Thank you. To ask a question, you will need to press *1 on your telephone. You will then hear an automated message advising that your hand is raised.

To withdraw your question. Please press star 1. 1 again. We ask that you please limit yourself to 1 question please. Stand by while we compile the Q&A roster,

Julian Mitchell: Our first question comes from the line of Julian Mitchell with Barclays, your line is now open. Hi, good morning. I just wanted to say congratulations, Chris, and thanks Don for all the hard work and wish you well in the board transition. Thank you.

Our first question comes from the line of Julian. Mitchell with Barclays, your line is now open.

Hi, good morning. Um, I just wanted to say um, congratulations, Chris and thanks Don for all the hard work and wish you well in the uh, board transition role.

Julian Mitchell: Maybe just my question would be around the gross margin outlook. Just trying to understand, I heard Pat say gross margins are up year on year, both third and fourth quarter. Looks like you're embedding organic sales growth year on year in Q4, and there should be some good volume leverage perhaps there.

Um, thank you.

Maybe just my question would be around, um, the gross margin, um, Outlook, just trying to understand. Um, I heard Pat say, gross margins are up year on year, both third and fourth quarter.

Julian Mitchell: So just trying to understand what's the kind of Q4 or exit gross margin that you're embedding for this year. And as you think into next year, realize that the cost productivity program, that the $2 billion number is largely in the run rate going into next year. So maybe any early thoughts on further gross margin expansion drivers? As I think you'd mentioned, gross margin should rise again next year.

Patrick Hallinan: Hey Julian, it's Pat. Yeah, we're expecting each third quarter and the fourth quarter year over year gross margin expansion, I'd say, in the third quarter in the one and a half. uh... to two percentage point range uh... and in the fourth quarter similarly maybe even getting above uh... the two hundred percent point range we we would expect This fourth quarter of 25, probably in that 33 to 34% range. And I think it speaks to the hard work that the teams are pursuing both on the mitigation and pricing front. You know, we're very committed to our 35% gross margin journey.

Um, looks like you're embedding organic sales growth year on year in Q4 and there should be some good volume leverage, perhaps their, um, so just trying to understand what's the kind of, uh, Q4 or exit gross margin, um, that you're embedding, uh, for this year. And as you think into next year, um, realize that the cost productivity program. The the 2 billion number is um largely in the Run rate going into next year. So maybe any early thoughts on further gross margin expansion drivers is that as I think you'd mentioned gross margins should rise again next year.

Yeah. Hey Julian, uh, it's Pat. Um

Yeah, we're expecting each uh third quarter and the fourth quarter year-over-year, gross margin expansion. I'd say uh in the third quarter in the 1 and a half

Uh, to 2 percentage Point range. Uh and then the fourth quarter, similarly, maybe even getting above

Uh, the 200 percentage Point range. We we would expect

Patrick Hallinan: And while tariffs have definitely given us something to manage, I think the team has been very, very active in attacking it. And the back half gross margin result is a result of the mitigation and the pricing work.

Uh, this, uh, fourth quarter of 25, probably in that 33 to 34% range. And I think it speaks to the hard work that the teams are pursuing, both on the mitigation, uh, and pricing fronts. You know, we're very committed to our 35%, gross margin journey and while

Patrick Hallinan: As we look to next year, you know, I don't know that I want to pin myself down on quarter by quarter guidance for 26 yet. But we very much expect to maintain that 35 plus percent gross margin journey. And, you know, we would expect in the back half of next year to be kind of on that journey. I'd say that tariffs probably, from a timing perspective, created a nine to 12 month delay in getting to 35%. But I think you should expect the back half of next year to be in the mid 30s and at or approaching that 35% range by the end of the year.

Uh, tariffs have definitely given us something to manage. I think the the team has been very, very active in attacking it. Um, and, uh, the back half gross margin result is a result of the mitigation and the pricing work. Um, as we look to next year, uh, you know, I, I don't know that I want to pin myself down on quarter by quarter, guidance for 26 yet, um, but we very much expect to maintain that. 35, Plus percent gross margin Journey.

Um, and, you know, we would expect.

Uh, in the back half of next year, uh, to be kind of on that journey. I'd say that tariffs probably, uh, from a timing perspective, created a 9 to 12 month delay in getting to 35%. But I think you should expect, uh, the back half of next year to be in the mid-30s.

Patrick Hallinan: I think the front part of the year will have to wait until we get farther along this year and into next year, because the front part of next year will be the unpacking of some of the FIFO, LIFO dynamics associated with tariffs. So I'm not going to pin myself in on the very front part of next year yet, because we're still waiting to see how tariffs play out the back part of this year. I would say from volume, I mean, yeah, we're, you know, we're up, you know, well, from sales, we're up a point the fourth quarter of this year or thereabouts.

Uh, and and and at or uh, approaching that 35% range by the end of the year. I think the front part of the year will have to wait, uh, until we get farther along this year and into next year because the front part of next year will be the unpacking of some of the the fifo lifo Dynamics associated with Tara. So I'm not going to pin myself in on the very front part of next year yet. Because we're still waiting to see um, how

How terrorists play out the back part of this year? I would say from volume, I mean, yeah, we're you know, we're up, you know, well,

Patrick Hallinan: Volume will be down, price will be up. You know, there's nothing going on in the gross margin that is really a volume leverage dynamic. It is all about mitigation and pricing and the continuation of our transformation program. We do still expect to deliver the $500 million of growth savings in our transformation program. Thank you.

Michael Rehaut: Our next question comes from the line of Michael Rehaut with J.P. Morgan. Your line is now open. Hi, thanks. Good morning and thanks for taking my questions and congrats, Chris and Don. Wishing you the best. Great working with you. Thank you, Michael. The updated guidance. and with some of the moving parts here.

Thank you. Our next question comes from the line of Michael reehut with JP Morgan. Your line is now open,

All right. Thanks, uh, good morning and thanks for taking my questions and congrats. Uh, Chris and Don wishing you the best great working with you.

Um, thank you, Michael wanted to wanted to kind of unpack. A couple of elements of

Michael Rehaut: First, if you could kind of hit on, you know, the 2Q upside that we saw, what are the offsets that didn't allow that that upside on 2Q to fully translate to the full year guide? And secondly, how should we think about the 65 cent headwind as it relates to 2026? In other words, do you expect to recover all of that through various actions or part of it?

The um the updated guidance um and with some of the moving Parts here first, if you could kind of hit on, you know, the the 2 queue upside that we saw um what are the offsets that didn't allow that, that upside on 2q to fully translate to the full year guide, um and secondly how should we think about the 65 Cent headwind?

Patrick Hallinan: You know, if you can kind of walk through those two elements. Hey, Mike. It's Pat again. You know, I would say for the quarter in the in the simplest of terms, You know, the beat versus our adjusted outlook and consensus was really about 15 cents operational and the rest was just tax timing. We had always expected in our 15% full year tax rate to have some discrete items, predominantly an IRS settlement, and about half of that was solidified in the second quarter much earlier than we had ever anticipated in our outlook. So, you know, 15 cents operational, the rest tax timing.

Um, as it relates to 2026, do you expect to recover all of that through various actions, or part of it? Um, you know, if you can kind of walk through those two elements.

Hey, like, uh, it's Pat again. Um, you know, I would say for the quarter in the simplest of terms.

Patrick Hallinan: In that operational, some of it was the timing of tariff expense throughout the year. I would say about 10 cents of it was we had less. tariff expense in the quarter just caught up in the FIFO LIFO calculations. It doesn't change our outlook of tariff expense for the year. So, you know, really, in the quarter, you had some FX favorability. And I'd say, you know, there, you know, all else being equal, you might expect that FX favorability momentum to carry through the back half. And certainly, you know, with the U.S. dollar strengthening a little bit, you know, some of that might dissipate.

You know, the the beat uh, versus are adjusted Outlook. And consensus was really about 15 cents operational and the rest was just tax timing. We had always expected in our 15%, uh, full year tax rate to have, um, some, some discrete items predominantly an IRS settlement and, uh, about half of that, um, was solidified in the second quarter much earlier than we had ever anticipated in our Outlook. So you know 15 cents, operational the rest tax timing. Um in that operational some of it was the timing of tariff expense throughout the year. I would say about 10 cents of it was we had less.

Patrick Hallinan: But really, that's offset by some mitigation expense that we have in our SG&A. And so I'd say, you know, the operating dynamic is... you know, we had some upside in the quarter. Most of it was just tariff expense timing that balances out the back part of the year. And then some incremental mitigation expense kind of consumes a small amount of FX upside for the year. I'd say most of what has changed in our forecast is, you know, we're trying to be proactive and anticipate a bit as best we can where tariffs are going. And so when we look at tariffs relative to where we were in the middle of the second quarter, you know, we're expecting the countries that currently have received letters to be exposed to the tariffs in those letters, the rest of the world to go roughly from 10 points to 20 points.

Uh, tariff expense in the quarter, uh, just caught up in the fifo lifo calculations. It's it doesn't change our Outlook of tariff, expense for the year. So you know really um in the quarter, you had some FX favorability and I'd say, you know, they're you know all else being equal, you might expect that FX favorability momentum to carry through the back half and, and certainly, you know, um, with the US dollar strengthening a little bit, you know, some of that might dissipate. Um, but really that's offset by some mitigation expense that we have in our sgna. Um, and so I'd say

you know, the operating Dynamic is

You know, we had some upside in the quarter, most of it was just terrific expense timing that balance is out the back part of the year, uh, and then some incremental mitigation expense, kind of consumes, uh, a small amount of FX upside for the year. I'd say, most of what has changed in our forecast.

Patrick Hallinan: Some of the timing around rare earths will have us paying a marginal, a bit more of China tariffs for a while. That's about in the year reported about 65 million of tariff expense. And we'll have a modest amount of incremental pricing that helps offset that. And that is what drives basically the 65 cents versus our original full year outlook is just an update to tariff expenditure and mitigation and pricing. I think as we look towards next year, Mike, you know, we expect between mitigation and pricing to largely offset what we see as $800 million of run rate tariff expense.

Is, you know, we're trying to, um, be proactive and, uh, anticipate a bit as best we can, we're tariffs are going. And so when we look at, uh, tariffs relative to where we were, uh, in the middle of the second quarter. Um, you know, we're expecting uh, the countries that currently have received letters to be exposed to the tariffs and those letters the rest of the world to go roughly from 10 points to 20 points. Um, some of the timing around Rare Earth will have us paying a marginal, uh, a bit more of China tariffs for a while. Uh, that's about, uh, in in the year reported about 65 million of tariff expense. And we'll have a modest amount of incremental, uh, pricing that that helps offset that. And that is what drives basically, uh, the 65 cents versus our original full year outlook.

Patrick Hallinan: And so, you know, what's going to flow through next year, obviously, in the front part of the year is some of the roll off of the tariff expense that'll be on our balance sheet. So the front half might be a bit noisy. But by the time we get to the back half of the year, we should be accreting margins, as I answered with Julian, you know, in the mid 30s and and are shooting for that 35% in the third or the fourth quarter. We'll see how quickly we get there.

Patrick Hallinan: And we should be largely mitigated out of China, we should be down to 5% or less China by the end of next year. Thank you.

Treating margins, as I, I answered with Julian, you know, in the mid, uh, 30s and and our shooting for that 35% in the third, or the fourth quarter, we'll see how quickly we get there. Uh, and we should be largely, uh, mitigated out of China. We should be down to 5% or less, uh, China by the end of next year.

Tim Wojs: Our next question comes from the line of Tim Wojs with Baird. Your line is now open. Hey, everybody. Good morning.

Thank you. Our next question comes from the line of Tim woj with beard. Your line is not open.

Tim Wojs: And I'll look at the same comments on Chris and Don. Thanks. Thanks for everything. And Chris, good luck.

Tim Wojs: I guess maybe just on pricing, I'm just kind of curious if you could elaborate a little bit how the pricing increases or tracking versus your expectations. I think that the 2 percent in the tool segment might be a little bit below what some are looking for, and I think that should accelerate into the second half. So just maybe a little color on how the price is being accepted, if there's any kind of elasticity that you point out and how to think about pricing in the second half.

Hey, everybody good. Uh, good morning and I'll I'll look at the same comments on on Chris and, and Don. Thanks. Uh, thanks for everything and uh, Chris, good luck. Um, I guess maybe. Just on on, on pricing. Um, just kind of curious if you could elaborate a little bit, how how the pricing increases or or tracking versus your expectations,

Christopher Nelson: Yeah, Pat, or Tim, this is this is Chris. So from a pricing perspective, you know, as we talked about last time, our price increase went in on schedule and has moved through and been realized. in line with our expectations and in the timing that we expected. So we feel good about where we are. And, you know, importantly, we feel good about what we've seen from competitive dynamics and how it's playing out not only on the shelf, but then as we look at our demand patterns after that price increase, we haven't really seen a significant change or really any change in the demand patterns or any new buying behaviors.

Uh yeah pad or Tim. This is uh this is Chris. Um, so from a pricing perspective, um you know, as we talked about last time uh our price increase went in on schedule and has moved through and been realized um

Christopher Nelson: As it relates to what you asked about elasticity, as Pat referenced in his comments, we are seeing about a one-for-one offset price for volume trade-off, which is kind of what we thought and is in line with our expectations. So the timing is on. We feel like the impact is on. The competitive dynamics seem solid.

Christopher Nelson: And then as we think about moving forward, you know, the combination of, you know, changes in tariff policy with us being able to firm up more of what we see as our well-planned-out mitigation actions, our next round of price increase, which we'll go in and we're in discussions right now to get it moving along with our customers, we'll go in at the beginning of Q4, is going to be much more modest. So it's kind of, you think about it as roughly half of what the first price increase was. And we're going to be able to do so in a way that we believe will continue along those same dynamics.

In line with our expectations and in the timing that we expected. So we feel good about where we are. And, you know, importantly, we feel good about what we've seen from competitive Dynamics and how it's playing out. Uh, not only on the Shelf but then as we look at our, our demand patterns after that, uh, price increase, we haven't really seen a significant change or really any any change in in the demand, uh, patterns or any new buying behaviors. Um, as it relates to, uh, what you asked about elasticity, as Pat referenced in his comments, we are seeing, uh, about a 1 for 1 offset price for volume trade-off, which is kind of what we thought and is in line with our expectations. So the timing is on, we feel like the impact is on the competitive Dynamic, seems solid. Um, and then, as we think about moving forward, um, you know, the combination of, uh, you know, changes in

Care of policy with us, being able to firm up more of what we see as our uh uh well. Um planned out mitigation actions.

Patrick Hallinan: And, you know, we have seen, you know, if we think about just, you know, what we've seen since the increase has gone through, we've seen roughly the same POS, and it's been fairly stable as what we've reported before. And, you know, in the quarter, it was down. you know, flat to down, slight low single digits, with a little bit of acceleration coming out of the quarter in the beginning of Q3 as well. So the pricing plan is solid and we're seeing it executed in the field as we would have expected and as we articulated last time we talked at the end of last quarter.

Our next round of price increase which will go in. Um, you know, we're in discussions right now to get it moving, along, with our customers, we'll go in at the beginning of Q4 is going to be much more modest. So it's kind of you think about it as roughly half of what the first price increase was. And we're going to be able to do. So in a way that we believe will continue along those same Dynamics. And, you know, we have seen, um, you know, if we think about just, uh, you know what we've seen since the increase has gone through, we've seen roughly the same PS and it's been fairly stable, uh, as what we've reported before, and, you know, in the quarter, it was down, you know, flat to down slight low, single digits, with a little bit of acceleration coming out of the quarter and the beginning of of Q3 as well. So, um, the pricing, uh, the pricing plan is, is, is solid, and we're seeing it executed in the field as we would have expected. And as we articulated, uh, last time we talked in

Patrick Hallinan: You know, and Tim, I only think I'd add to that is, you know, you'll see the full run rate, obviously, over the back part of the year, and you're probably going to be seeing in the T&O business, you know, the high single digits range of a price increase. And as Chris was saying, a like offset in the volume, you know, netting to, you know, flattish, total organic revenue performance for the back half. Thank you.

at the end of, uh, last quarter,

you know, and Tim, I, the only thing I'd add to that is, you know, you'll see the full run rate obviously, uh, over the back, uh, part of the year and you're probably going to be seeing, uh, in the tno business. Uh, you know, the high single digits range of a price increase and as Chris was saying a like, uh, offset in the volume, uh, you know, netting to, you know, flattish, uh, total organic Revenue performance, uh, for the back half.

Nigel Coe: Our next question comes from the line of Nigel Coe with Wolf Research. Your line is now open. Thanks. Good morning, everyone. And Don, quite a run there. So congratulations. Hope you enjoy some retirement and Chris, congrats on getting the big seat.

Thank you. Our next question comes from the line of Nigel, Co with wolf research, your line is open.

Nigel Coe: On the pricing, I just want to make sure, are those actions at this point being actions and announced to the channel, or is that still to come through the quarter? Maybe just a bit more detail on the $800 million of tariffs. I mean, obviously, it changes by the day, more or less, but would the copper tariffs be part of that, or is it because it hasn't been confirmed? It's not. I mean, I just talked about that, and then I think the other big moving piece right now in that map is the USMCA compliance in Mexico.

Thanks, good morning everyone. And um, Don quite a run there. So congratulations. Uh, hope you enjoy some retirement and Chris congrats on getting the big seats. Um,

I, I think.

On the on the pricing. Uh just want to make sure are those actions.

Christopher Nelson: So just maybe just bring it up to speed in terms of how that's trending. I'll start and tackle the price in the USMCA, Nigel. So the price, the first round of price is fully in. It is in. It's on the shelves. It's been passed through. And, you know, we've been tracking the impact for, you know, a number of weeks now as that has gone in. And what I was referring to is that we are, for the round two, we are currently, we have notified our channel partners, and we're in discussion about what we would see as an implementation of that second round of pricing, which, once again, would be more modest in about half of what we saw for the first round is going in at the beginning of Q4.

On the on the 800 million dollars of tariffs. Um I mean obviously it changes by the day more or less but it it would the copper um tariffs be part of that. Or is it? Because it hasn't been confirmed. It's not. I mean, just just talk about that. And then I think the other big moving piece right now, um, in in that math is the US MCA compliance in Mexico. So just maybe just bring it up to speed in terms of how that's trending.

Certain uh tackle the price in the usmca Nigel. Um so the the price uh the first round of price is fully in and there it is. In its on the shelves it's been passed through and you know, we've been tracking the impact for

Christopher Nelson: As it relates to USMCA, we have, you know, we've been doing a lot of work there, as you might imagine. And we do believe that we have... plans and programs in place that will allow us over time to get more towards what you'd say is the average type of USMCA qualified for a like industrial manufacturing company. And those programs obviously range in time from things that are easy to do with changes in bills of material to longer lead time with changes of component suppliers and localization of a supply chain. But we see nothing structurally that would prevent us from over time being at what we'd see is that kind of more industry average level.

You know, a number of weeks now is that has gone in. And what I was referring to is that we are for the round 2. We are currently, um, we've we've notified our our Channel partners, and we're in discussion about what we would see, as a, as an implementation of that second round of pricing, which once again, would be more modest in about half of, uh, what we saw for the first round is going in at the beginning of Q4, um, as it relates to usmca, um, we have, um, you know, we've been doing a lot of work there as you might imagine. And we do believe that we have, um,

Patrick Hallinan: Yeah.

Patrick Hallinan: And Nigel, on the on the tariff. You know, yes, it does. It does change with frequency. But, you know, we've kind of been anchored to around three numbers. Now, you know, 800 being the third and the current run rate, you know, it was as high as $1.7 billion annualized run rate back in early April, when China was at 145 plus. Then in the middle of the quarter, when there was relief, the 90 day relief period, it went down to $600 million. Our best estimate of where things are likely to go, inclusive of us paying a bit more in China tariffs, as some of the rare earth timing works itself out, is around $800 million annualized.

Plans and and, and programs in place that will allow us over time to get more towards what you'd say, is, the average type of usmca qualified for a, a like, industrial Manufacturing Company, um, and those those, uh, those programs obviously range in time, uh, from things that are, you know, easy to do with changes in bills and material to longer lead time with, uh, changes of components suppliers and localization of the supply chain. But we see nothing structurally that would uh prevent us from over time being at what we would see is that kind of more industry average uh level

Yeah, and Nigel on the

On the tariffs.

Yeah, I guess it does. It does change with frequency, but, you know, we've kind of been anchored to around 3 numbers now, you know, 800 being the third and the, uh, current run rate. You know, it was as, as high as 1.7 billion dollar annualized run rate back in early April, when China was at 1 145 Plus,

Patrick Hallinan: You know, the change from $600 to $800 is mostly our best estimate of us paying marginally a bit more in China tariffs, as as both of our governments work through rare earth licensing. The rest of the world, which is 23% of our U.S. COGS base, going from 10 to 20, and a few above that, like Thailand and Cambodia, which are 36, and Malaysia's at 25, and then Mexico going from 25 to 30. the estimate and you know in the simplest rule of thumb you know what we would expect in our income statement this year is about 60 to 65 percent of that annualized run rate in that Thank you.

Um, then in the middle of the quarter, when there was relief, the 90-day relief period, it went down to 600 million our, our best estimate of where things are likely to go. Um, inclusive of us paying a bit more in China tariffs as some of the rare earth timing works itself out, um, is around.

800 million annualized. Um, you know, the change from 6 to 800, uh, is, is mostly our best estimate of us paying marginally a bit more in China tariffs as, as both of our governments work through Rare Earth licensing. Um,

The rest of world, uh, which is 23% of our us cogs base, uh, going from 10 to 20, uh, and a few, uh, above that like, uh, Thailand and Cambodia, which are 36 in Malaysia that 25, uh, and then Mexico going from 25 to 30. That's the estimate. And, you know, in the simplest rule of thumb, you know, what? We would expect in our income statement, this year is about 60 to 65% of that, annualized, run rate, um, in that zip code.

Christopher Nelson: Our next question comes from the line of Chris Snyder with Morgan Stanley. Your line is now open. Thank you. I wanted to ask on customer buying patterns. It sounded like maybe that signal there was some inventory that came out in Q2 from the channel. I guess, was that the correct takeaway? And then any expectation on potential de-stock into the back half of the year? Do you have visibility into that when you speak with the customers, particularly on the home side?

Thank you. Our next question comes from the line of Chris Snyder with Morgan Stanley. Your line is open.

Thank you. Um, I want to ask on uh, customer buying patterns. Um, you know it sounded like may maybe that signal. There were some inventory that that came out in Q2 from the channel and I guess what is that the correct takeaway and then any expectation on, you know, potential.

Christopher Nelson: This is Chris. I'll tackle the second question first and say that we see our inventory levels as being healthy. They're in line with historicals, and as we've been in discussions with our channel partners, we anticipate that remaining the same. So there's no big story on destock. What you were referencing from maybe some of the volatility that we saw in the quarter as it related to buying patterns, that's more in line with the fact that as everyone was trying to be able to put together the best plan that they could for the change in trade policy, there were changes in promotional plans, as simple as I can put it, where people were deciding what they were going to put on promotion, what they were going to bring in to have promoted in not only Q2 and Q3, and how they were going to adjust their promotional inventories to support that change of plans.

Destock into the back half of the year, you know, do you have visibility into that when when you speak with the customers particularly on the um, you know, the Home Center?

Christopher Nelson: So that's a temporary disruption that I think is what you would expect as people tried to, us included, we went through a fairly extensive process with all of our channel partners in making sure that we could put forth with them the most attractive assortment of products with advantage position in a tariff world that our end users would want. And so we've been going through that planning and that is just a temporary kind of Q2, Q3 dynamic that we saw in the changing of promotional inventory and timing of that shipment. Thank you.

Able to put together the best plan that they could for the change in trade policy. Uh there were changes in promotional plans as as simple as I can put it where people were deciding what they were going to put on promotion what they were going to bring in to have promoted and not only Q2 and Q3 and how they were going to adjust their uh their promotional inventories to support that change of plans. So that's a a temporary disruption that I think is, you know, what you would expect, as people tried to, you know, us included. Uh, we went through a fairly extensive process with all of our Channel partners and making sure that we could put forth with them, uh, the most attractive. Um uh uh assortment of products with Advantage position for our uh, you know, in a tariff world uh, that our end users would want. And so we've been going through that planning and you know, that that is just a temporary kind of Q2 Q3 Dynamic that we saw in the changing of promotional inventory.

And timing of that shipments.

Rob Wertheimer: Our next question comes from the line of Rob Wertheimer with Mellius Research. Yeah, hi, thanks. Good morning, and congrats.

Thank you.

Summer with Melius research. Your line is now open.

Christopher Nelson: I wanted to start with the commentary around outdoor and just curious if you have any application around that. Is it any share or is it just category? And does it spill over into other, outdoors may be a little bit more seasonal, into more consumer grade or DIY grade?

Yeah. Hi thanks. Good morning and uh, congrats

Christopher Nelson: No, this is Chris, you know, we don't, it's nothing broader than what I'd say is we had a later start to the season, as it was, it was pretty wet. And then what we've been seeing as of late is a much more robust POS activity. So as Pat referenced in, in his comments at the beginning, we see that market is being all in for the year kind of down a point flat to slightly down overall. But with no real significant change in buying patterns or competitive dynamics. And we actually believe that based on what we see for more of the industry data, we're actually in a good position from a share perspective as well as we've really been seeing some nice traction with DeWalt as well as Cub Cadet in those areas.

Um, I wanted to start with the the um, the commentary around outdoor and just curious if you have any, you know, amplification around that is it is it any share or is it just category and is it spill over into other? You know, not Outdoors, maybe a little bit more seasonal in a more, you know, more consumer grader, DIY grade. Um, other

No, this is Chris. Um you know we don't it's it's nothing broader than what I'd say is we had a later start to the season. Um as it was it was pretty wet and then what we've been seeing as of late is uh uh much more um robust uh posos activity. So as Pat referenced in, um, in his comments, at the beginning, we see that market is being all in for the year, kind of down a point flat to slightly down overall, but with no, real significant change in buying patterns or competitive Dynamics. And we actually believe that based on what we see, for more of the industry data, we're actually in a good position from a share perspective, as well as we've really been, uh, seen some nice traction with that, you know, DeWalt as well as uh uh Cub Cadet in those areas.

Unknown Executive: Thank you.

Jonathan Matuszewski: Our last question comes from the line of Jonathan Matuszewski with Jeffrey. Your line is now open. Good morning, and thanks for taking my question. Nice to see the ongoing momentum at DeWalt.

Thank you. Our last question comes from the line of Jonathan Mazisi with Jeffrey. The floor is now open.

Christopher Nelson: Can you spend some time discussing the trend at Craftsman? You know, what are you seeing in the competitive landscape there? And how do you think about factors beyond potential interest rate cuts, stimulating demand on the DIY side? Thanks so much. Yeah, thank you very much. You know, as we've, as we've pointed out, we've been very pleased with, you know, our continued momentum and really across the board success we've been having with DeWalt for a number of quarters now. And as you think about the the Craftsman brand and playing more than DIY segment, obviously, that that segment has been more effective than the professional as of late.

Good morning and thanks for taking my question. Uh, nice to see the ongoing momentum at DeWalt. Can you spend some time discussing? Uh, the trend at Craftsman. You know, what are you seeing in the competitive landscape there? And how do you think about factors beyond potential interest rate, Cuts stimulating Demand on the DIY side? Thanks so much.

Christopher Nelson: We have seen you know, as we've been looking at our POS versus what we see for, you know, credit card data in that in that area, we've been performing at roughly at what we think the market has been doing. So it's been more of a market issue. You know, obviously, as you point out, there's, you know, a interest rate sensitivity to that. But more importantly, from our perspective, we do believe that we have opportunities with the Craftsman brand to continue to expand our, our assortment of products, and specifically in the power tool space to continue to be able to build out that brand and control we control and drive organic growth in any market condition.

Yeah. It's uh, thank you very much, you know, as we've, as we've pointed out, we've been very pleased with, um, you know, our continued momentum and and really across the board success. We've been having with DeWalt for a number of quarters now. Um, and as you think about the, the Craftsman, uh, brand and playing more on that DIY segments, obviously that, uh, that segment has been more effective than the professional, uh, as of late. Um, we have seen, you know, as we've been looking at our POS versus what we see for, you know, credit card data, uh, in that, uh, in that area we've been performing at roughly at what, we think the the market has been doing. So it's been more of a, a market issue. Um, you know, obviously, as you point out, there's, you know, a, uh, interest rate, sensitivity to that but more important.

Christopher Nelson: And that's really where we're where we're putting our focus. We have great channel partners there. And it's an emphasis for everybody, you know, moving forward.

Christopher Nelson: And I think what we'd say is that we're going to be making significant progress over the next 12 to 24 months, and, you know, when when the market turns, which inevitably it will as well with change and repair and remodel work, we're going to be in a position to certainly take advantage of that overall in the company. So it's a great brand. Thank you.

Dennis Lange: I would now like to turn the call back over to Dennis Lange for closing remarks. Thanks, Shannon. We'd like to thank everyone again for their time and participation on the call.

Certainly from our perspective, we do believe that we have opportunities with the Craftsman brand to continue to um, expand our uh, our assortment of products and and specifically in the power tools space, to continue to be able to build out that brand and control what we can control and drive organic growth in any Market condition, and that's really where we're where we're putting our Focus. Um, you know, we have great Channel Partners there and it's an emphasis for everybody, uh, you know, moving forward. And I think, what we'd say is that we're going to be making significant progress, uh, over the next 12 to 24 months. And, you know, when when the market turns which inevitably it will as well with uh, change in in repair and remodel work, we're going to be in a position to certainly take advantage of that uh, overall in the company. So uh, it's a, it's a great brand.

Thank you. I would now like to turn the call.

Dennis Lange: Obviously, just please contact me if you have further questions. Thank you.

Unknown Executive: This concludes today's conference call. Thank you for your participation.

Thanks, Shannon. We'd like to thank everyone again for their time and participation on the call. Obviously, please contact me if you have further questions. Thank you.

Unknown Executive: You may now disconnect.

Conference call. Thank you for your participation. You may now disconnect