- Revenue: $4 billion, down 3% versus the prior year.
- Organic Growth: 1%, led by DeWalt outdoor product categories and engineered fastening.
- Adjusted Gross Margin: 29.2%, up 560 basis points versus the second quarter of last year.
- Adjusted EBITDA Margin: 10.7%, a 5-point improvement versus prior year.
- Adjusted Diluted Earnings Per Share: $1.9 for the second quarter.
- Free Cash Flow: Approached $0.5 billion.
- Debt Reduction: $1.2 billion in the quarter.
- Quarterly Cash Dividend: Increased to $0.82 per share.
- Full Year Adjusted Diluted EPS Guidance: Raised to a range of $3.70 to $4.50.
- Full Year Free Cash Flow Guidance: Increased to $650 million to $850 million.
- Tools and Outdoor Revenue: Approximately $3.5 billion with 1% organic growth.
- Tools and Outdoor Adjusted Segment Margin: 10.4%, a 590 basis point improvement compared to last year.
- Power Tools Organic Revenue: Declined 2%.
- Outdoor Organic Revenue: Grew 6%.
- Industrial Revenue: Declined 20% versus last year.
- Engineered Fastening Organic Growth: 2%.
- Aerospace Business Organic Growth: 24%.
- Industrial Adjusted Segment Margin: 13.5%, an improvement of 50 basis points versus prior year.
- Free Cash Flow Generation: $486 million in the second quarter of 2024.
- Inventory Reduction: Sequentially reduced by approximately $100 million this quarter.
- Full Year Adjusted Gross Margin: Expected to approximate 31% in the second half of 2024.
- Full Year Organic Revenue: Expected to be down 0.5 percentage points at the midpoint.
- Tools and Outdoor Full Year Organic Revenue: Expected to decline 1% at the midpoint.
- Industrial Segment Organic Revenue: Expected to be relatively flat to slightly positive.
- Adjusted EBITDA Margin: Expected to approximate 10% for the full year.
- Adjusted Tax Rate: Expected to be 10% for the full year.
Release Date: July 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Stanley Black & Decker Inc (SWK, Financial) reported a significant improvement in gross margin, up 560 basis points year-over-year to 29.2%.
- The company achieved strong free cash flow generation, approaching $0.5 billion in the second quarter.
- SWK successfully reduced its debt by $1.2 billion in the quarter, contributing to improved balance sheet health.
- The DeWalt brand delivered its fifth consecutive quarter of organic growth, driven by new product introductions and strong retail volume growth.
- The company raised its full-year adjusted diluted EPS guidance range and increased its free cash flow guidance, reflecting confidence in future performance.
Negative Points
- Total revenue for the second quarter was $4 billion, down 3% compared to the prior year.
- The industrial segment experienced a 20% decline in revenue, primarily due to the infrastructure divestiture.
- Power Tools saw a 2% organic decline, driven by the consumer DIY category.
- The company expects mixed demand trends to continue in 2024, indicating ongoing market challenges.
- Despite improvements, the macro environment remains challenging, with expectations of continued softness in consumer demand and automotive production.
Q & A Highlights
Q: Can you explain the earnings trajectory for Q3 and Q4, and provide a tax rate placeholder for next year?
A: The EPS flow is correct, with Q4 revenue slightly north of $3.5 billion and operating margin (OM) between $300 million and $330 million. The tax rate for next year is expected to be in the high teens, approaching 20%.
Q: Can you provide an update on the operating environment and promotional plans for the end of the year?
A: The operating environment is expected to remain similar to the first half. We are excited about our promotional plans, especially in the cordless power tool segment. Investments are focused on market activation and adding field resources to drive innovation and share gain.
Q: What are your thoughts on the long-term earnings potential and EBITDA margin for Stanley Black & Decker?
A: We believe 35%+ gross margin is achievable, and we are building an operating model for organic growth at two to three times GDP. Long-term, we see this as a 40%-ish business, with significant earnings potential as markets stabilize and grow.
Q: Can you provide color on point-of-sale trends through the quarter and into July?
A: Point-of-sale was modestly positive, driven by a more normal outdoor season and strong performance from DeWalt. As the outdoor season peaked, trends returned to a flattish pattern, which we expect to continue in the back half.
Q: What is the expected cadence of free cash flow in the second half, given the timing shifts into Q2?
A: The second half is traditionally strong, driven by income and working capital improvements, along with CapEx. We expect to meet our inventory target and see balanced contributions from working capital and CapEx improvements.
Q: Can you unpack the Q2 gross margin and provide guidance for the second half?
A: The Q2 gross margin improvement was driven by savings acceleration and lower inventory costs. For the second half, we expect Q4 gross margin to be north of 31%, with Q3 slightly below 31%, driven by continued savings and operational improvements.
Q: What are you seeing in terms of consumer behavior and its impact on the back half?
A: The professional segment remains stronger than the consumer segment, which is more responsive to promotions. We expect an uneven environment but are focused on executing our supply chain transformation and targeted investments to drive growth.
Q: Can you explain the slight reduction in organic sales growth guidance and SG&A expectations for 2025?
A: The reduction is due to expected softness in DIY and automotive segments. For SG&A, we plan to maintain a similar percentage of sales as this year, focusing on protecting growth investments despite a soft macro environment.
Q: Can you elaborate on the expected gross margin improvement in Q3 and the timing of a volume inflection?
A: The Q3 gross margin improvement is driven by savings cadence rather than seasonal dynamics. For volume inflection, we believe interest rate changes will be a precursor, unlocking long-term growth potential in our end markets.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
