SWK Q1 2026 Earnings Transcript

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Date

Wednesday, Apr. 29, 2026, at 8 a.m. ET

Call participants

- President & Chief Executive Officer — Christopher Nelson

- Executive Vice President & Chief Financial Officer — Patrick Hallinan

- Vice President, Investor Relations — Michael Wherley

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Full Conference Call Transcript

Christopher Nelson: Thank you, Michael, and thank you all for joining us today. I am pleased to report that Stanley Black & Decker delivered a solid start to the year, outperforming our expectations on the top and bottom lines in the first quarter as we demonstrated continued progress on our strategic priorities. We are confident in our strategy and in the team's ability to continue to execute and deliver results. For the first quarter, revenue was up 3% overall and flat organically. This was ahead of our expectations, driven primarily by a well-executed outdoor products preseason. Our adjusted gross margin rate of 30.2% was down 20 basis points year-over-year, essentially unchanged.

Adjusted EBITDA margin of 9.2% was down by 50 basis points year-over-year, slightly ahead of our planning assumptions for the period. Adjusted earnings per share were $0.80, $0.20 ahead of the high end of our first quarter guidance range of $0.55 to $0.60. Pat will unpack this further later in the call. Additionally, on April 6, we announced the successful completion of the previously disclosed agreement to sell our Aerospace Fasteners business. This portfolio change is consistent with our strategy to focus on our core business and commitment to enhancing shareholder value. The vast majority of the approximately $1.6 billion of net proceeds have already been applied towards debt reduction.

We are now positioned with a stronger balance sheet and have unlocked the ability to deploy capital to accelerate shareholder value creation. We expect our capital allocation strategy to be biased towards share repurchases, which the Board has authorized. Turning to our first quarter operating performance by segment. I'll start with Tools & Outdoor. First quarter revenue was approximately $3.3 billion, up 2% year-over-year. Organic revenue was down 1% as a 4% benefit from targeted pricing actions was more than offset by 5% of volume pressure. Currency was a 3% benefit in the quarter.

As we discussed in February, our base case assumption was that top line volatility, especially within the North American retail channel, would persist through at least the first quarter. Consistent with our expectations, competitors continued to take price and we honed our approach to promotions for select products. Also, as expected, our results this quarter reflected a decrease in volume, primarily driven by lower retail activity in North America. This was partially offset by a strong initial sell-in for outdoor products as we approach the peak selling season. International growth and prioritized investment markets such as Eastern Europe, United Kingdom and Latin America was an encouraging outcome.

Additionally, increased sales generated by professional end user demand in the U.S. commercial and industrial channel indicates that our growth investments are building momentum in the market. Tools & Outdoor first quarter adjusted segment margin was 8.7%, which was consistent with our plan. Now for additional context on the top line performance by product line in first quarter. Power tools organic revenue declined 2%, and hand tools, accessory and storage organic revenue declined 3%, which were both driven by factors consistent with the broader segment performance. Outdoor organic revenue increased 1%, driven by encouraging preseason sales for spring 2026, particularly for ride-on and zero-turn mower offerings.

While we are still in the early stages of the outdoor season, our performance thus far reflects strong execution by our team, including effective order fulfillment. Now Tools & Outdoor performance by region. In North America, organic revenue declined 2%, reflecting trends we discussed for the overall segment. The U.S. commercial and industrial channel delivered high single-digit organic growth, demonstrating a strong return on our targeted investments in brand activation for the professional end user. I'll talk more about this in a moment. Point-of-sale performance in the quarter was aligned with our expectations and broadly consistent with reported home improvement consumer credit card data. In Europe, organic revenue was up 1%.

Growth in prioritized investment markets, including the United Kingdom and Eastern Europe, was partially offset by softer market conditions in other parts of the region. The rest of world organic revenue was flat, with double-digit growth in Latin America, offset by pockets of market softness in Asia and the Middle East. Turning now to Engineered Fastening. First quarter revenue grew 10% on a reported basis and 7% organically. Revenue growth was comprised of a 6% volume increase, 1% higher pricing and a 3% currency tailwind. The Aerospace business continued its strong performance, achieving 31% organic growth in the quarter.

The automotive business delivered 4% organic growth, outpacing the market, driven by strong North American demand and strength in global fastener systems for auto OEMs. General industrial fasteners organic revenue declined low single digits. Adjusted segment margin for Engineered Fastening was 12% in the quarter. Year-over-year expansion of 190 basis points was primarily due to improved profitability in Aerospace and favorable automotive volume and mix. Overall, through disciplined execution, both the Tools & Outdoor and Engineered Fastening segments delivered revenue on a reported and organic basis that was better than expected despite the challenging operating environment. Segment margin rates were also in line with expectations this quarter through disciplined execution, operational cost improvements and targeted refinements to promotional strategies.

We believe the results are evidence of the momentum we're building. We have conviction in our strategy and are confident that we are taking the actions required to ensure sustainable growth and shareholder value creation into the future. Thank you to our team for maintaining their customer-centric approach and for advancing our vision of building a world-class branded industrial company. Our ambition is anchored by 3 core strategic imperatives: purposeful brand activation, operational excellence and accelerated innovation. I would like to share a few updates regarding how our efforts are taking root. Starting with DEWALT. You've heard us talk many times about safety as a core end user priority and value proposition of the products we deliver.

Our Perform & Protect lineup is designed to provide product features to defend against dust inhalation, loss of torque control and tool vibration without sacrificing the performance that professional end users demand. DEWALT has over 200 Perform & Protect solutions that are attracting professional end users and converting them into users of the DEWALT platform. These types of end user oriented solutions, combined with our ongoing investments to expand our field service and sales teams contributed to the strong commercial and industrial performance in the quarter, including professional contractors fully converting from competitor offerings to DEWALT cordless solutions and lead construction contractors outfitting large new project job sites with DEWALT.

In addition, last quarter, we indicated that the STANLEY brand was positioned to return to growth in 2026. I'm pleased to share that our targeted investments are supporting new listings, largely driven by the initial phase of our product refresh and new product introductions. We are seeing green shoots and are on pace to return to growth with the STANLEY brand by midyear. Our expanded field team and trade specialists serving the professional end user are driving meaningful traction with our global channel partners, building demand as we grow together. I will now pass the call to Pat to discuss progress on a few key performance metrics and to outline our 2026 guidance.

Patrick Hallinan: Thank you, Chris, and good morning to everyone joining us today. Before we jump into the guidance, let me start by providing a bit more detail on our adjusted EPS outperformance in the first quarter, which, as Chris noted, was $0.20 above the high end of our guidance range from February. Above-the-line operating outperformance made up about half of the outperformance, driven by Outdoor. The remainder of the outperformance came from below-the-line items, most of which didn't change our full year view on those items materially. For example, our forecasted first quarter tax rate was 30%, and that landed at 26% due to the timing of a discrete tax item.

But we have not changed our view on the full year tax rate of 19%. Now let me walk you through our updated guidance and other assumptions for 2026. There are a few key updates embedded in this guidance you should be aware of. First, the CAM deal closed on the early side of the anticipated window. Practically, that resulted in us removing CAM's expected second quarter contribution from our guidance. that 1 quarter adjustment lowers our expected Engineered Fastening segment pretax profit by about $15 million, but it also lowers second quarter interest expense by a similar amount, meaning it has essentially no impact on second quarter or full year adjusted EPS guidance.

Second, there have been numerous tariff policy changes since our last earnings call, which prompted new assessments and assumptions. We expect that all-in, these tariff policy changes and our updated tariff assumptions equate to net tailwind for us this year on a gross basis compared to our assumptions at the beginning of the year. In the near term, we have a temporary period of lower tariffs since the replacement Section 122 tariffs are lower than the former IEEPA tariffs.

Our base case assumption is that new Section 301 tariffs will be introduced at the same level as the old IEEPA tariffs, which means our underlying tariff costs would be virtually the same by August as they were prior to the Supreme Court ruling in February. This is our current expectation, but that is subject to change as policy is finalized, and we will update our assumptions as appropriate. Third, since the start of the conflict in the Middle East, we have seen inflationary cost pressures in resins and freight.

Last, we have also seen meaningful inflation in recent months in battery metals and tungsten, which is applied to the tips of our sawblades and drill bits for increased durability and heat resistance. We believe the combined impact from these inflationary pressures roughly offsets the benefit from the tariff tailwind in the year. Moving on to our actual guidance metrics. For 2026, we expect adjusted earnings per share to be in the range of $4.90 to $5.70, representing growth of 13% at the midpoint and remaining consistent with our original adjusted earnings guidance.

We now anticipate total company revenue will be about flat compared to the last year, which is slightly lower than prior guidance because of the removal of CAM from the second quarter expectations. We still expect organic revenue to grow by a low single-digit percentage year-over-year. This outlook reflects on our focus in pivoting to growth and our confidence in seizing the share opportunities across our key markets. We continue to expect 50 to 100 basis points of full year benefit from foreign exchange, which should predominantly land in the first half. Moving to gross margin expectations. We anticipate adjusted gross margins will expand by approximately 150 basis points year-over-year, consistent with prior guidance.

This is supported by top line expansion, price, ongoing tariff mitigation efforts and continuous operational improvement. We believe we are firmly on track to meet this target, and I will talk more about it on the next slide. We plan to continue growth investments in 2026 to further advance our robust innovation pipeline and fuel market activation, with the goal of enhancing brand health and accelerating organic growth. We expect SG&A as a percentage of sales to remain around 22%. We will continue to manage SG&A thoughtfully, allocating capital to strategic investments that position the business for long-term growth.

Free cash flow is expected to be in the range of $500 million to $700 million, including projected taxes and fees associated with the CAM divestiture. Excluding such payments, free cash flow is expected to be in the range of $700 million to $900 million, consistent with our original guidance. Our free cash flow performance is expected to be accomplished through a disciplined and efficient approach to working capital management, progressing inventory towards prepandemic norms, while remaining attentive to our ongoing tariff mitigation and footprint optimization initiatives. We were pleased to deliver progress on inventory reduction in the first quarter. Looking at our segments, we are planning for organic revenue growth and segment margin expansion in both segments.

Tools & Outdoor is still expected to deliver low single-digit organic growth in 2026, led by market share gains in what we anticipate will be a roughly flat market. Organic revenue in the second quarter is expected to be up in a low single-digit range as our recent commercial efforts continue to gain traction and as we start lapping the promotional disruption that started in the second quarter last year. Throughout the rest of 2026, we also expect to see sales trends improve from our new product launches and commercial initiatives, with a focus on outperforming the market. Adjusted segment margin is expected to improve year-over-year, driven primarily by sustained pricing actions, tariff mitigation, operational excellence and thoughtful SG&A management.

Engineered Fastening is expected to grow low-single to mid-single digits organically, which is slightly lower than our prior guidance, reflecting just 1 quarter of contribution from CAM rather than the 2 in our original guidance. Adjusted segment margin is expected to improve year-over-year, primarily due to continuous operating improvement and volume leverage. Turning to other 2026 assumptions. Our GAAP earnings guidance of $4.15 to $5.35 includes pretax non-GAAP adjustments ranging from $10 million to $65 million. This GAAP guidance is higher than prior guidance due to an expected $260 million to $280 million gain on the sale of our CAM business, which is largely offsetting charges that are primarily related to footprint actions.

Our full year interest expense is now expected to be about $270 million, which accounts for 3 quarters without CAM and the resulting lower debt profile as well as lower i