Stanley Black & Decker : Wolfe Research Global Transportation & Industrials Conference Transcript

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SWK.N - Stanley Black & Decker Inc at Wolfe Research Global Transportation & Industrials Conference (Virtual)

EVENT DATE/TIME: MAY 25, 2021 / 6:25PM GMT

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MAY 25, 2021 / 6:25PM, SWK.N - Stanley Black & Decker Inc at Wolfe Research Global Transportation & Industrials Conference (Virtual)

C O R P O R A T E P A R T I C I P A N T S

Donald Allan Stanley Black & Decker, Inc. - President & CFO

Lee B. McChesney Stanley Black & Decker, Inc. - VP Corporate Finance & CFO of Tools & Storage

C O N F E R E N C E C A L L P A R T I C I P A N T S

Nigel Edward Coe Wolfe Research, LLC - MD & Senior Research Analyst

P R E S E N T A T I O N

Nigel Edward Coe - Wolfe Research, LLC - MD & Senior Research Analyst

Good afternoon. Thanks for joining us. My name is Nigel Coe from Wolfe Research, and I'm pleased to introduce Stanley Black & Decker to our 14th Annual Global Industrials and Transports Conference. Very pleased to introduce Don Allan, our President and CFO, with Stanley Black & Decker; and Lee McChesney, who is VP of Treasury and CFO of Tools & Storage Group. Sorry, Lee, I'm not sure if you're SVP or VP, so I apologize if I got that wrong.

So Don is going to make some prepared remarks for the first 5, 10 minutes. Before I hand over to Don, just a reminder that if you have any questions, please lock those questions in the box. And I'll start partway through and take any questions.

So Don, over to you. Thank you.

Donald Allan - Stanley Black & Decker, Inc. - President & CFO

Great. Thank you, Nigel. So I'm going to walk through 3 pages for probably about 10 minutes max, and then we'll get to Q&A. But just a little bit of a refresher on Stanley Black & Decker. And then we also had a Growth Summit about 2 weeks ago virtually, which we were really able to walk through all the significant growth catalysts that we see for our company going forward. And so I'd like to do a little bit of a refresher on that in a couple of pages as well.

So if we move to the next page in the presentation, probably past the cautionary statements. It's an overview of the company, looking at the 3 different segments of tools and storage, industrial and security. I'm talking slow so we can move the slides, but we have a little malfunction. So I'll just keep going.

So many of you have seen this slide before. It's an overview of our 3 segments, shows market cap, shows our dividend yield and revenue numbers by the segments. And it really is making the point that we think we've created a set of platforms across Stanley Black & Decker that really allow us to differentiate versus our competitors while creating a vision when Jim became the CEO on top of the strategy of really kind of 3 pillars we wanted to almost double down strategically.

One is to become known for innovation beyond our industry, really be known across the business community as a company that's highly innovative. The second is continuing our top quartile performance, which we've had a long track record. And I showed that in the Growth Summit, some of the significant performances versus our peers in the market over the last 20 years in different time frames. And then being a company that has always been socially responsible but really enhancing that even further and making sure we're building upon our ESG initiatives and mission as a company.

So if we flip to the next page. As I mentioned, we had a really exciting Growth Summit about 2 weeks ago, which was a little more than 3 hours of time, and the key messages we wanted people to take from this is that we really believe we've built an outstanding company that is a people-oriented culture. It's very dedicated to performance, innovation and social responsibility, as you saw in the first page.

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MAY 25, 2021 / 6:25PM, SWK.N - Stanley Black & Decker Inc at Wolfe Research Global Transportation & Industrials Conference (Virtual)

We also have demonstrated a strong track record of performance and shareholder return. We are well positioned to benefit from trends accelerated during the pandemic with an array of revenue growth catalyst, which I'll touch on in the next page. And we have developed a substantial tech-enabled program to support sustainable margin expansion in addition to the revenue growth opportunities that are in front of us. And we want people to take away that there's many organic revenue growth opportunities in our company for the next 3 to 4 years and beyond, but there's also a significant margin expansion opportunities that go along with that.

So if we shift to those revenue growth opportunities on the next page, you can see what these secular drivers are that we've been talking about for about 6 to 9 months externally. First is in our Tools & Storage business, which is e-commerce and the acceleration of e-commerce and the opportunities that we have to build upon the strong platform that we've created globally in e-commerce, not just in the United States, but globally. And then we have the Black & Decker initiative being overseen and led by Jeff Ansell with his amazing track record of really accelerating growth around some of our key brands, like you did with the Craftsman brand when we acquired that. Now he's going to try to do something and reinvigorate the Black & Decker brand. And I think he'll be incredibly successful with the team that he's built around him.

And then the reconnection with the Home & Garden, which has become a big part of what's emerged out of the pandemic, and we don't believe this is a short-term cycle. It's something that's going to continue for an extended period of time because our homes are going to be a center for many of us. So even as the vaccines around the world become more and more effective, many companies, including our own, is looking at hybrid models of returning to the office. And so that means you'll have many people that still will be spending a large amount of their time at home. And therefore, they're going to want to make sure that home is a very comfortable situation for not only their personal lives, but also what they have to do there professionally.

Electrification is the third area, which Graham Robinson did a great job at the Growth Summit, walking through the opportunity in engineered fastening as the automotive industry continues to shift towards electric cars. And then John Wyatt did an outstanding job talking about the outdoor opportunity to electrify many of the gas products that will come with the MTD acquisition, which we hope to complete by the end of this year and as we execute on the 80% option that we have out there. That is available for us to do that starting in July of 2021.

And then last but certainly not least, health and safety. In our security business, the security team has done a wonderful job of creating various solutions and products over the last 3 or 4 years that are very directed towards health and safety of employees or patients that's in a health care setting. These products and solutions are very relevant to a pandemic and post-pandemic world. And so they've created a lot of energy, and we believe they're going to demonstrate some really robust growth in the remaining 3 quarters of 2021 to show you how those particular initiatives are gaining traction within their world.

So we are excited about these growth catalysts. We think that they are going to be quite significant. I laid out a road map of over $1 billion of revenue opportunities on an annual basis coming from these different initiatives, building off a wonderful base from 2020 of $14.5 billion in revenue. And so we are incredibly excited about these growth catalysts. We think we're well positioned to capture and build upon these trends and accelerate them coming out of the pandemic.

So those are all my opening comments. Nigel, and I'll pass it back to you to open up to Q&A.

Q U E S T I O N S A N D A N S W E R S

Nigel Edward Coe - Wolfe Research, LLC - MD & Senior Research Analyst

Great. Thanks, Don. That's was a good way to set things up. Maybe before I into my prepared questions, I thought maybe just pick up on some of the comments you made there. Now e-commerce, you talked about, I think, 20% of Tools & Storage sales go through e-commerce channels today. It's always struck me that e-comm could be a tremendous way to penetrate an emerging markets need. You referred to, I think, Latin America is one area where that's really taken hold. I'm just wondering pits like Southeast Asia, even China, to what extent is e-commerce really driving growth in those categories?

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MAY 25, 2021 / 6:25PM, SWK.N - Stanley Black & Decker Inc at Wolfe Research Global Transportation & Industrials Conference (Virtual)

Donald Allan - Stanley Black & Decker, Inc. - President & CFO

Well, that's what's really interesting about the situation is that a lot of the growth that we have experienced in the short-term is really coming from mature markets, European markets, the North American market and some of the Latin American markets, too. But the opportunity going forward is not only to build upon those strong positions in mature markets, but how do we really double down or even triple down our efforts in certain emerging markets in Asia, such as China, such as Indonesia, India. And then there could be opportunities in Russia and some other Middle Eastern and northern African countries as well.

And then there's mature markets that maybe haven't really been penetrated very well by us, such as Germany and Japan, that we don't have large market shares where e-commerce can be a wonderful opportunity for us to really accelerate growth.

So when we look at all those different markets, we think the next 3 to 5 years, not only building upon the big base we have in the mature markets, the regions that I mentioned, but also focusing on all these other countries where we have relatively low market share. And the opportunity is not so much we're worried about disrupting the channel that we already have a large base, because we don't have a large base, we have a relatively small to midsized base. The opportunity is chasing this new e-commerce platform that really is more direct to the consumer versus a B2B platform.

Nigel Edward Coe - Wolfe Research, LLC - MD & Senior Research Analyst

And how do your e-com margins compare? I mean so obviously, you have to distinguish between where you maybe go through an e-com channel with the existing partner versus a direct-to-consumer. But when you got direct-to-consumer thereby certain venting traditional channels, how do those margins compare to sort of overall Tools & Storage margins?

Donald Allan - Stanley Black & Decker, Inc. - President & CFO

They're high. I mean as you might expect, they're -- it depends on the country. It depends on the product line. It depends on the brand, and it also depends on the distribution model. We have to make sure that we have a certain type of distribution model to get the product to the end consumer in the time frame that is expected in an e-commerce world. And so -- but given all that, it's still higher than it would be going through the more traditional channels and -- which is why we're really excited about this opportunity.

Nigel Edward Coe - Wolfe Research, LLC - MD & Senior Research Analyst

Great. So it's good to see you're getting some good momentum with the Black & Decker brand because that is an all-star brand that just hasn't been -- kind of hasn't found its, I guess, its momentum. What is the size of that brand today? And where do you think it can go? And I'm just thinking here about the way that Dewalt has grown from when you acquired it back in 2010 to where it's now. Just curious where you see the potential for Black & Decker to be in maybe 5 years' time?

Donald Allan - Stanley Black & Decker, Inc. - President & CFO

Yes. It's an interesting question because -- and I'll ask Lee and Dennis to give you the current size of the brand when I'm done with my comments. But the -- this could be a massive opportunity. It really could, because Black & Decker is a really powerful global brand. And folks in the U.S. don't always recognize it. They recognize it as a really strong U.S. brand that goes across so many different categories, small appliances, tools, outdoor products, et cetera. But when you get outside the United States, it could be a tradesman brand. It can be a consumer brand. And sometimes, it can even be a pro brand depending on the country that you're talking about. So it's even broader when you get outside the United States. And the opportunity is quite significant as a result.

And you -- to your point, it fits really the e-commerce channel incredibly well. And so because it has that breadth and it has that opportunity to go to so many different potential users of the products. It's why we're so excited about it. And I could guess at how big this could be, but I really think

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MAY 25, 2021 / 6:25PM, SWK.N - Stanley Black & Decker Inc at Wolfe Research Global Transportation & Industrials Conference (Virtual)

it's something that, over a long period of time, could be $5 billion, could be $10 billion. It's just -- it really depends how far you want to go and how broad you want to go with the brand, because Jeff is not looking at just tools. He's looking at really the centering around the home and how do you make this a lifestyle brand. And so it's about tools. It's about appliances. It's about outdoor equipment. It's all these different things that -- some of which we've seen before and some of which we haven't seen before this brand on. It's really known as a home brand in many markets around the globe, and that's why I think it could potentially be of that magnitude. Now it might take a decade or more to get to those types of numbers, but we'll see. How big is the brand today, folks?

Lee B. McChesney - Stanley Black & Decker, Inc. - VP Corporate Finance & CFO of Tools & Storage

It's pretty close to $1 billion.

Donald Allan - Stanley Black & Decker, Inc. - President & CFO

Yes. I was going to say that.

Lee B. McChesney - Stanley Black & Decker, Inc. - VP Corporate Finance & CFO of Tools & Storage

In Jeff's Growth story, if you go back and watch that video, when we started, we had about $1 billion, we've ended about $1 billion. It has had some ups and downs. And in some cases, we've built a business and then maybe purposely moved it to a different brand. So it's not a case of a net loss or in equation to Stanley Black & Decker. But to Don's point, what we've also seen is since we brought focus to Black & Decker, and really, it's only, I'll say, 9 months, now that really Jeff's formed his team and dove in, we've seen robust growth, so I think at or above what you've seen from Stanley Black & Decker. So early days.

But to Don's point, really excited with just even with what we started with, and that really hasn't brought forward the product road map that Don highlighted and some of the things we want to do across the globe. Black & Decker will be an important part of our e-commerce strategy around the world as we go forward here. So it will grow as a brand. We'll still do those traditionally, but it will be a very significant e-commerce brand as well.

Nigel Edward Coe - Wolfe Research, LLC - MD & Senior Research Analyst

If it takes 5 to 10 years, if you get to those kinds of numbers, that's still a meaningful contribution. So it feels like Black & Decker is going to be at least a couple of points, 2 or 3 points of growth over the next 5, 10 years. And then just thinking about that $1 billion of opportunities you talked about, Don, I just want to clarify that, that is for 2022. So if that's the case, you've got 5 or 6 points of kind of growth potential over and above whatever the market does in '22. Is that the right way to think about it?

Donald Allan - Stanley Black & Decker, Inc. - President & CFO

Exactly the right way to think about it. That's the way we're trying to position it is that make your prediction on what you think the market is going to do. If you're a bull and you think the market is going to continue to be strong, this would be on top of that. If it's -- you think there's going to be a bit of a retraction and some of this has been a bubble and this might help ensure that we maintain our base revenue performance in -- that we experienced here in 2021. And that was really the message we want to get across to everybody.

Nigel Edward Coe - Wolfe Research, LLC - MD & Senior Research Analyst

Right. Well, we'll definitely come back to '22 in a moment, but I just want to maybe if we could just switch attention to 2Q trends in terms of what we're seeing Q-to-date You gave some pretty specific ranges for 2Q. Just wondered if you maybe give us an update on what you're seeing so far.

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