We're ready for the next presentation. Excited today to have Stanley Black & Decker here with us. We have Don Allan, the President and CEO, as well as Pat Hallinan, their relatively new CFO. Before we get going into the Q&A, Don wanted to start with a few prepared remarks. Without further ado, the stage is yours, Don. Thank you, Joe. Good morning, everybody. As Joe mentioned, I'm going to go through about three or four pages in about 10 minutes, and then we'll get to the Q&A. Just a little bit of a refresher about Stanley Black & Decker. You know, we have become, over the last year or so, just under a year, very focused on becoming a more streamlined company and putting our energy into the some great franchises we have in our tools and outdoor business and our industrial platform. As you know, many of you know, probably we sold off our security business and our oil and gas business, and those closed during 2022. Now we're a company that is heavily focused on these two particular platforms. Clearly a significant weighting to tools and outdoor, which is last year, the revenue was about $14.5 b illion. Our industrial platform is about $2.5 billion. Fantastic brands, you know, iconic brands in our tools and outdoor business, and some pretty impressive brands in our industrial space as well. A long track record of innovation across these different businesses, and in particular, tools and outdoor had a great legacy of innovating products through, you know, corded to cordless, electrification strategy of outdoor that's well underway, and a variety of other type of innovation. We are the biggest tool company, tool and outdoor company in the world. We have the broadest category of products, and we have the broadest channel coverage across the globe and geographic coverage as well. We continue to be very focused on how we leverage our operating model as we go through the transformation of the company to get the profitability back to where we want it to be, get our inventory levels down substantially. I'll give a little bit of color on that over the next few pages. If you've been following our story since May or June of last year, you probably know that we're undertaking a significant transformation of the company with initially two areas of focus, which is our profitability at the gross margin level is not where it needs to be, and we want to get it back up to 35+%. Inventory levels were very high. We brought down inventory by about $1 billion since the peak in 2022 of where we were. We have been heavily focused on really optimizing this cost reduction program to reduce complexity across the portfolio, across the corporate locations versus the businesses, and really have optimized our corporate structure in a significant way and reduced costs there dramatically. Fo cused on how we operate our businesses more efficiently and effectively with streamlined organizational structures. Clearly a big part of this is transforming the supply chain, which I'll touch on in a little more detail. That'll drive about $2 billion of savings or benefit over a three-year time horizon. We expect about $1 billion of that to be done cumulatively by the end of this year in 2023. We will take a large chunk of that, about $300 million to $500 million, to invest for future core organic revenue growth by investing in innovation, investing in the electrification strategy, which is really going across many of the outdoor categories that are gas-powered today, and making sure that we are the market leader in various geographies around the world in certain channels. Also, making sure we have a world-class supply chain that meets the expectations of our customers around fill rates and lead times. When we do this, and we are successful doing this, we really believe it will dramatically enhance the shareholder value and the return that shareholders get. We believe the financial outcomes will be the ability to grow organic revenue 2x to 3x market growth. We define market growth as pretty much global GDP. Our gross margins getting back to 35+% by 2025. Free cash flow conversion of 100+%. Obviously making sure we maintain and enhance our powerful innovation machine and hit the expectations of our customers along the way. How are we doing in that regard? We've made great progress so far. We've cumulatively, since the beginning of this program, we have $430 million of savings cumulatively through Q1 o r Q1, the savings were $230 million. Those significant progress towards the billion-dollar goal that we have for cost reductions on a cumulative basis by the end of 2023. Inventory is progressing very well in addition to that. Our reduction in inventory has been $1 billion, as I mentioned, since mid-2022. $200 million of that happened in Q1, which is actually something that is unusual for our first quarter as we build product for the spring season for our both outdoor and tools promotional season for Father's Day. A lot of the Father's Day promotions that happen in June with our customers. That's actually something that was really bucking the history of our company. We haven't had a reduction in inventory in Q1 since 2009, which was the last significant recession we saw. The supply chain transformation is well underway. We're targeting strategic sourcing, driving benefits there, SKU reduction, product platforming, in particular in our power tool family categories. Facility consolidation, as we look at really how we streamline the manufacturing footprint and the distribution network, in particular in North America. Operations excellence, really getting back to some things that we've done historically before the pandemic, which is all the different lean processes and skill sets that did exist in our plants. It kind of disappeared for a period of time during the pandemic as we dealt with a lot of volatility. That's going to drive $1.5 billion of the $2.2 billion of savings in the supply chain. The other $500 m illion is coming from taking a lot of complexity out of the company through SG&A. It's reducing corporate costs, in particular, dramatically and making us a much more simpler company in how we operate and getting our corporate teams closer to our businesses. That's about $200 million of annualized benefit. We went through a spans and layers exercise, dramatically reduced the number of layers we had in the organization and increased the spans of control, and that's about $100 million of benefit. Those two items are pretty much complete at this point. The third item is looking at non, you know, non-people costs, which is looking at everything from office supplies to consulting costs, you name it, and reducing that by about $200 million. That's still underway here in 2023, but will be completed over the next six to nine months. This is progressing very well. We're very pleased with the outcome so far and hitting all the expectations around cost reduction and inventory reduction. We, as I mentioned at the beginning, are a company that has, for a long, long time, had incredibly talented people, has amazing iconic brands, and has a powerful innovation machine. We think those are the three focused areas of our company that make us strong, that make us have the ability to differentiate versus our competitors and really make sure we're successful with our customers and our end users. With that, we're going to hit the Q&A. Over to you, Joe. Great. Yeah. Thanks. Thanks, Don. Appreciated that. Maybe just kind of starting on, there's a lot going on, right? strategy-wise and the company is clearly evolving. You know, you've been at the company for almost 25 years. I'm curious how you see the company fundamentally changing over the next few years. As it relates to some of the restructuring actions, you know, as you think back or some of these actions you should have taken earlier, or why is now the right time? Yes. You know, the company has changed quite a bit over the 25-year time horizon. You know, I started back at Stanley Works almost, you know, 24.5 years ago, roughly. You know, it was pretty much a construction hand tool product, entry doors, and automatic doors. That's what the company was. We went on a journey of really building out the portfolio and eventually creating the biggest tools company in the world by putting Black & Decker and Stanley together. At the same time, we built the security platform out, we built our industrial platform out, you know, we're really pursuing the idea of being a diversified industrial as a company and having a lot of different platforms that would react differently in different cycles across, you know, different economic environments. As we continued to see the value of adding more tools and eventually outdoor acquisitions to our company, it became very clear that the company really should be focusing more on the incredible value and the assets that our tools and outdoor business provides. We have, you know, we have a nice little small industrial business left over as well, which has a little bit of correlation to tools and outdoor. Now we're really very much focused on being a more efficient, streamlined company that is more of an operating corporation versus a holding company, a diversified industrial that has a lot of different things going on in a portfolio of businesses. I sit here today and I say, "You know, we need to really leverage the power of the brands we have, the power of the innovation engine we have, and really drive a organic opportunity that is significant." Also, along with that, when you do a lot of acquisitions, your company can become somewhat complex. It can end up having a lot of SKUs. It can have a lot of differentiated processes to get things approved or completed or funneling through the different systems in the company. Although the integration of these acquisitions was completed to a certain extent, there were certain parts of the integration that were not really completed in, as an example, the manufacturing footprint, the distribution network. Those types of things were never really evaluated and said, "Okay, if we consolidate facilities or we change our distribution network in the United States, we can better serve our customers, and we can actually drive savings as a result of that." Part of this is really completing that. The second thing I'd say is we've always had a desire to get our manufacturing and supply base closer to our customers, and we've been working on that for seven, eight, nine years in somewhat of a methodical, slow pace. The pandemic came along, and you clearly recognize by having a long supply chain coming from Asia was really complex and had a lot of challenges in meeting the needs of our customers in North America and Europe. We decided we need to accelerate that. We need to move faster at that, which means we'll have a bigger presence in countries like Mexico to feed the North American market, a bigger presence in Eastern Europe to feed the European market, and less of a presence in Asia over time. You have to also look at your supply base and how do you migrate your supply base in a similar nature, which will take a little bit longer to do that, probably longer than the three-year time horizon we're looking to transform our supply base. It's a little bit of a couple things going on there. It's really we're getting closer to being a pure play, so how do we actually have a corporate organization that's more streamlined and closer to running the business? Two, how do you aggressively kind of finish the integration of a lot of these acquisitions related to the manufacturing footprint? The third thing is really, you know, continuing that journey of migrating your manufacturing and supply base closer to your customers in an accelerated way. That was super helpful. A lot of jumping off points there. Maybe let's just start on your pure play comment. You're right, your portfolio has changed in a variety of different ways over the last decade. You do have this industrial business that seemingly, I think from the outside, doesn't seem like there's a ton of synergies with the tools and outdoor business. How are you thinking about that strategically over time? Yeah, I mean, we really like our industrial business. And it's, you know, it's got three different components to it. It has an infrastructure attachment tool, demolition tools that is tied to basically large infrastructure projects, so that's building roads, building bridges, et cetera. That obviously is an industry that's going to see a lot of growth over the next five to ten years as governments, in particular the U.S. government, but other governments around the world start to invest in infrastructure. There's some benefit associated with that industry continuing to go, and maybe there's a little bit of a tie to our Tools and Outdoor business, but nothing significant. You have the engineered fastening business made up of a couple different pieces. You have an aerospace piece, which is very unique and different tied to the building of planes and the fasteners that are used in that. The more traditional engineered fastening business that we've had, which is tied to auto production and general industrial manufacturing. There's not massive overlap or correlation or benefits of that, those businesses being part of a company that has tools and outdoor in it. When we look at it over time, if there's a value creation opportunity, we'd have to seriously consider, you know, doing something in the future. For now, we look at it and say we have some industrial businesses that are tied to infrastructure, automotive manufacturing, and aerospace manufacturing that are all industries that are going to demonstrate growth over a multi-year period of time. There may be a period in the future, one, two, three years from now, we say we can create a lot of value by selling one or two or three of those businesses. We'll see how it plays out, but right now we're focused on maximizing the value opportunity by allowing them to continue to grow and assisting them with investment to grow, and then also improving the profitability. Super helpful. Your commentary on supply chain, right? You started this kind of transition local for local back when the tariffs kicked in. Yeah. I remember in 2017. Know that you're in the process of, you know, consolidating some rooftops, as you mentioned, as part of the M&A strategy and finishing the integration. What does it mean from an investment standpoint and like you mentioned going, you know, having to build greater scale in Mexico? Can you do it within your own footprint today? Do you have to build the new facilities? What does that actually mean from an investment perspective? Well, we've actually opened up two new facilities in Mexico over the last 24 months. That was really part of the strategy that we started before the pandemic. Now what we're doing is really just trying to ramp them up and really maximize the opportunity down there, and we continue to focus on that. Eventually start to bring down, you know, some of our Chinese manufacturing locations and the volume there, and have that location in China serve more of the emerging markets versus the mature markets eventually over time. A lot of the investment's actually been made related to that shift. I think we have enough locations and footprints in the right areas. We might need to build out our Eastern European location. We have one in the Czech Republic that's an outstanding facility that we probably will have to expand upon to feed the European market. It's more about looking at the different centers of excellence for our products and say, "Okay, this location in the United States is going to focus on manufacturing saw blades, and that's what they're going to do, saw blades for the world. This location in the United States is going to focus on screwdrivers, and they're going to be a screwdriver, a hammer, a whatever. This one's going to be a tape measure location." The operations team has developed a strategy that's more around locations that will be COEs, and they'll specialize in a certain type of manufacturing of our products. Then in some cases, serve the globe and in other cases, just serve the region. Pat, let's bring you into the conversation. Great to meet you in person. I know that it's only been one whole month that you've been on the job. I'm curious, you know, what attracted you about this opportunity, s pecifically, what are you going to help kind of bring to the table, as the new CFO of Stanley Black & Decker? Yeah. The attractions were a great portfolio of brands, and a great associate base, very revved up about their brands and innovation. I see it as a great value creation opportunity on a big scale. You know, I think the focus in the next six to 12 months is improving the business model as a transformation is focused. Get the margin back up, generate cash, and delever, and finding along that journey, new investment for both innovation and other, growth avenues. As we come out of the current macro environment, really having the innovation revving, and get the momentum behind the brands, that you've seen longer term. That's the focus. I think, you know, as a CFO, a big part of it is, you know, we have not just me as a new member of the leadership team, but we have a new chief operating officer coming, you know, and a few others that are relatively new to the leadership team is, you know, having the debate around where are the best opportunities, the focal few opportunities for growth, and how do we invest efficiently behind them and allocate resources behind them. Pat, you know, I don't cover Fortune. It's covered by somebody else at Goldman. I'm curious, like, what were you most known for in terms of, you know, the value that you added to that organization? Well, I think Fortune, a lot like Stanley, a durable, mostly durable, product company. Fortune, not everything in its history was durable, but went through a transition from being a holding company to being much more of an operating company focus. I think as a CFO, my focus was broadly across three things. You know, sometimes taking very strong high-performing brands and taking them to a new level, brands like Moen, also adding M&A and M&A platforms to the plumbing business there, but also turning around businesses, businesses like the security business and the cabinets business. I think I have experience in both areas, and, you know, I anticipate at Stanley lending, you know, those experiences to our total portfolio. Okay. Great. Don, maybe turning it back to you. You talked about the inventory reduction in the first quarter, you know, better than expected, typical from a seasonal perspective. Yeah, how important is this second quarter to meeting your inventory reduction targets for the year? In particular, you know, as you think about the outdoor season, how important is that to hitting the targets for the year? Yeah. I think actually every quarter this year is important for us to hit our objective for inventory reduction. I believe we'll take another nice step forward in inventory reduction in Q2. Probably won't be quite as big in Q3, but we'll have another reduction, and then Q4 will be another step down as well. Each quarter is going to have to contribute in some way, shape, or form, and I do feel like we're well-positioned here in May to hit the objective we've laid out there for Q2. You never know with things like outdoor, but, you know, the trend in the weather has been much better the last three or four weeks than it was in March, and we'll continue to see. We're positioned well with our customers. We have the product there. Now it's just a matter of it moving out of their system. You know, longer term, yeah, I think you're still planning to keep some excess inventory on hand. What happens to that inventory over time? Like, what's the goal in terms of working that down? Ultimately, how does that potentially impact, you know, that 35% gross margin target that you have out there? Yeah. I think, you know, by the end of this year, you know, this is dependent on the macro environment, but if we assume the macro environment stays consistent with what we're experiencing right now and what our, kind of our midpoint guidance is, you know, our production levels by the end of the year should be starting to get back up to normal levels as we go into 2024. Therefore, you know, that means we've gotten about $1.7 billion or so of inventory out since the middle of 2022 by the end of this year. We'll be at about 140 days inventory or 45 days of inventory at that point. Before the pandemic, you know, by at the end of certain years, we'd get our DSI down to sometimes below 100, sometimes around 100. I don't necessarily think that the right target for us in the short term b ecause I think, you know, to make sure that we're meeting fill rate expectations and lead times of our customers, we probably will take the 140 down to about 120 during 2024, which means we're continuing to optimize inventory. We don't think we necessarily need to do that in a way that pulls back production again in 2024. It's more of just really maximizing the mix of the revenue, the mix of the inventory and really what we like to say internally, optimizing inventory levels across the board. That might be another $300 million to $500 million of a reduction in inventory in 2024 to get to that outcome. We probably just let the transformation of the distribution network, the manufacturing footprint, let that get completed, and then we'll assess, okay, do we want to try to get the 120 down to slightly lower levels as we really optimize the network and we're still meeting those customer expectations? I think it's possible we could get back to something closer to 100 once that transformation is complete, but I think we also want to be thoughtful and make sure that we don't cause blips with our service levels with our customers. Yeah. I'm going to turn it to the audience in one second. Just one quick follow-up to that. When you think of the limiting factors to reducing your inventory even quicker than what you just outlined, is that mostly demand? Is it mostly, you know, got to maintain our labor force because when we're ready to produce, we're still in a tight labor market? How are you thinking about the different dynamics in what you've laid out? I think, you know, I think if we had a stronger demand environment. You know, we could be more aggressive with inventory reduction. Given this kind of choppy demand environment we're in right now, where there's some strength in certain pockets and there's weakness in other pockets, and you have to balance that against what you said. I mean, we do want to maintain certain core levels of a labor force in certain key plants across the globe, so we don't want to take it down too far. I think it's, you know, we do have products that can sit for a while, that they actually are durable goods and they can sit in inventory and they're not going to go bad or expire or something like that. We can be more methodical in doing that. That being said, we've already taken out $1 billion of inventory in less than basically eight to nine months, and we're going to take out another $700 or so over the next nine months. I mean, that's fairly aggressive, actually. Moving, yeah. You know. Moving. Question in the audience over here on the right-hand side. Just to follow up with the inventory reduction, you know, $1.7 million, that's not, definitely not a small number. I would say, you know, a lot of folks I speak with, you know, investors still not satisfied with that, the pace. This is a quick question related to pricing as well. Like, I know you talk about you want to maintain your pricing discipline, not going to do a lot of promo. What do you need to see in terms of the change in the competitive landscape, you know, you have a lot of Asian players are, could be very aggressive on pricing? Like, what do you need to see that they're doing for you to change thinking around that? Yeah. I think actually the competitive dynamic in the industry around pricing has been pretty balanced. I mean, nobody's really doing unusual pricing activities and unusual promotions to kind of force inventory out of the channel. It's being done more like I described, which is somewhat methodical in nature. You know, our customers have a focus on wanting to reduce inventory but in a reasonable, thoughtful way. They're also very much focused on protecting profitability and ensuring that, you know, they hit the right levels of profitability. We're all focused on those two different things. When you have an industry focused on that, unless somebody, "goes rogue" and starts doing really radical pricing, that's the way it's going to play out, and it's a more effective way for it to play out and results in not really doing damage to your company. Now, if somebody shifts to your question, if somebody says, "No, I'm going to get, w e'll have to evaluate that, and decide what that means to us". The good news from my point of view is that we've got $1 billion out already. Even though some folks might like to see another $1 billion out in the next six months, that's probably not realistic, just given the mix of inventory and the whole pricing dynamics that are happening within the space. You know, we always evaluate what's happening with our competitors and whether that justifies in us having a different response. At this point, we think the path we're on around pricing and inventory reduction and the approach we're all taking across the industry appears to be how it's going to play out through the summer into the fall. Any other questions from the audience? Okay, I'll keep going. Can you maybe just touch on the trends? You mentioned that the last three to four weeks has gotten better from a weather perspective. I know that you guys called out consumer, DIY, outdoor, like, having a slower start, but the pro holding out. Just any update that you'd like to give there? No, I think pretty much what we said last week is where we are right now and I will encourage you, the weather's beautiful out there. Feel free to go out and buy a lawnmower. All right. On one of the other initiatives that you guys have outlined is SKU reduction plan. I think you talked about like a 50% target reduction. It seems like a massive number. How is this impacting potentially your relationship with your channel partners? I actually really like the way that the team is approaching this. I'll have Pat give you a little more color on what we're trying to do. Usually when you do something like this, you start with, t here's a tranche of SKUs that haven't been eliminated that really have very little revenue and very little inventory tied to it. You quickly just cut those out, which we did that already. The second tranche is going after opportunities to eliminate those SKUs, but you do have some revenue and some inventory tied to it today. It has to be a little more thoughtful, but I'll have Pat give you a little more color on that. Yeah. You know, from here, we're going to have to govern it on the pace at which we can engage our channel partners and present alternatives to them and make it a win-win. You know, the good news is, you know, we designed the program from the start to move at a pace that accommodated that. As Don mentioned, you know, the first tranche was stuff that was pretty much inactive already and just take out the complexity from our own value chain. We're now into a part, second wave where there's a meaningful, you know, 10,000 to 20,000 SKUs where we're going to have to present to channel partners alternatives that work for them in terms of their top line and contribution generation and for us. We'll probably work through that for 12 months to 24 months. Then there'll be you know, even further waves where those stakes will become bigger. We'll work through them at a pace where we use product lifecycle management to work those SKUs out. I think this is going to be going on for a while. The transformation is going to run at least through 2025, and the SKU part of it probably goes beyond through 2025, 'cause at some point it becomes predicated on the rate of innovation and the rate at which that innovation's being adopted. We've sent a very strong message, initially me, now both Pat and I, to the business team that we don't want to lose shelf space as a result of this initiative. This initiative is to make us more efficient as an organization, at the same time, to better serve our customers. It has to be thoughtful and it has to be the way that Pat was describing. Otherwise, you'll lose shelf space and you'll be writing off inventory, which is the last thing you want to do in an initiative like this. I'm curious, when you think about where you're taking out SKUs, how much of it is coming from recent acquisitions that you did versus, you know, stuff that's been in the portfolio for a long period of time and maybe technology has adapted? Like, any color behind that would be helpful. Yeah. I do think it's a little bit of an overhang of the acquisitions we've done and not really necessarily going through a robust integration process of SKU reduction at the time, y ou know be cause you do have overlap of brands. When you think about CRAFTSMAN rolling out and the STANLEY brand, the Black & Decker brand, the IRWIN brand, and the LENOX brand. There's overlap in all those different brands of products. How do you really maximize the opportunity and say, "Okay, well, you know, IRWIN's known for these particular products, maybe get back to just that," and then you replace some of the other products that IRWIN's on with a STANLEY brand or a CRAFTSMAN brand, depending on what the customer channel is. This is probably more heavily weighted to the hand tool part of our business versus the power tool part. There's a little bit of it that goes over into power tools, but, you know, when you think about, you know, construction hand tools and all those different brands, all those brands are, except for Black & Decker, are on those particular products. That's probably where the bigger SKU reduction's going to happen. There's brands that you've never heard about that are in Europe that came with the Facom acquisition 15 years ago that are the brand called USAG that's sold in Italy, and there's a couple other brands like that are sold in certain countries. Do you eliminate that brand and replace it with Facom or a different brand? There's all those types of examples out there as well. One last one for me, and I know it's probably too early to think about 2024, but as you, and we know what the earnings framework looks like for the second half of the year, what the expectation is, how do you think about the confidence in the framework for 2H, what's it dependent on? As you start to think about 2024 and what that ultimately means for 2024, you know, how would you kind of, you know, what kind of framework would you put out there for 2024? My CFO is going to probably hit me. I mean, obviously the back half of 2023 is dependent on demand. We laid out some demand scenarios with our guidance. If the midpoint scenario plays out for the rest of the year, then I think we have a high level of confidence that we can hit the EBITDA number that was mentioned by Pat on the call last week, which is basically an annualized EBITDA in the back half. If you take the back half and annualize, it's about $1.3 billion to $1.5 billion. And we think that's kind of the base that you can build upon going into 2024. In 2024, you'll have another wave of cost savings coming from this transformation that's, you know, $2 billion in total over a three year. You can assume whatever growth you want to assume on top of that. Some of those savings we'll take and reinvest in the front end of the business to stimulate more top-line performance organically. There's a lot of net positives that would play out that would say, "Okay, I'm starting with $1.5 billion EBITDA annually, and I can build upon that in 2024." I'll let people assume what they want to assume for demand in 2024 to figure out that math, but it's going to get you to, you know, some of the EPS numbers that we've mentioned in the past, which is, you know, anywhere from, you know, $4 to $5 for next year. If all that plays out that way in a stable then a growing demand environment in 2024. That's, that's super helpful. Just to be clear, the investments where you're reinvesting into the business is goin be basically electrifying mostly the outdoor portfolio. Is that where the focus is? Electrification, and then some of the, what we call end user activation resources, which are feet on the street that are out there kind of stimulating demand with the professional construction worker and landscaper, and a little bit of digital marketing activities too. Great. Don, Pat, great to meet you. Great to see both of you guys and thanks for coming. Thanks, Joe. Thank you, everybody.