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Stanley Black & Decker CEO on Q1 earnings beat and the booming tool market

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Stanley Black & Decker CEO James M. Loree discusses the company’s first-quarter results, as well as the state of the booming tool market thanks in part to the resurgence of DIY trends.

Video Transcript

BRIAN SOZZI: Stanley Black & Decker hammered home another strong quarter this week as the industrial economy reopens and homeowners continue to remodel their homes during the pandemic. The company's first quarter sales surged 34%, and profit margins grew in all segments of the company. Stanley Black & Decker also lifted the high end of its full-year profit guidance by $0.70.

Joining us now is Stanley Black & Decker CEO James Loree. James, good to speak with you here. It's been a while. So go through the quarter here, and this is a pretty strong quarter from you guys, what parts of the business are growing the strongest as economies around the world are reopening?

JAMES LOREE: Well, let me just give you a quick walk around the world and a couple of statistics on the products themselves. You know, the-- the organic growth in North America was 41%. US retail, which is the home centers and Amazon, was up 48%. Europe was up 47%. With the UK, believe it or not, 80% growth. And France, Italy, Spain, and others greater than 30%.

The emerging markets up 77%. Latin America, 77%. Asia was up 62%. I mean, there is a global boom going on for at least the tool market and some other markets as well. So-- and then just on the products, power tools up 50%. 5-0. I mean, a typical great quarter for us would be maybe 10%, 12%, 14%, but 50%. Hand tools, 28%. And get this-- outdoor, 120% growth. It's just all over the place.

BRIAN SOZZI: Jim, back in my prior life as an analyst, I covered you guys for-- for close to 10 years. And what always impressed me, you guys are true cost savings magicians. Now this year, you called out a $235 million hit from inflation. How are you going to overcome that?

JAMES LOREE: Well, we'll get about $235 of inflation, as you said. And then about 30% to 50% of that will be covered in price. And the other remaining part will be covered through cost productivity and something we call margin resilience, which is an effort we've been working on for a couple of years now where we're taking artificial intelligence, and machine learning, and industry 4.0, which you and I talked about in the past, and applying it to the value pools in the company.

And that-- that really provides another $100 million or so of cushion to help offset that inflation. You know, I've been dealing with inflation for two decades as a C-level executive in this company, and we are not at all concerned about the impact on the bottom line here with all the great offsets that we have.

MYLES UDLAND: And you know, Jim, when you look at the breakdown between the pro market and the consumer market for-- you know, for a lot of your tools and you think about the growth trajectory there, specifically on-- on the home side, on the consumer side, are some of those one-time expenditures, someone buys a home, all of a sudden they've got a couple grand of stuff they didn't know they needed to buy? Or do you think this is people thinking more seriously about investing in their home, doing more DIY, trying to figure out how to actually use a power drill for the first time and sticking with that through-- through the cycle here?

JAMES LOREE: Yeah, our research certainly indicates the latter. I will say there's a number of dynamics going on with the consumer and the pros, frankly, right now. But there is a global resurgence of DIY. And it is driven by a generational change where homes are being repurposed.

There's a lot of people with a lot of time that are at home. They're looking for things to do. They can do things constructively and productively on the home. And that's a big help.

But there's also a reconnection with the home as an epicenter of one's existence, at least for the time being. And I think it's going to continue on. And the garden as well. And you mentioned the outdoor business growth, I mean, that's just spectacular in terms of people spending time investing in their-- their lawns and their gardens.

BRIAN SOZZI: And Jim, our very own Julie Hyman, her morning starts, in many respects, with very loud gas-powered leaf blowers outside of her window in New Jersey. Where is this industry at in terms of turning power tools into electric?

JAMES LOREE: Well, it's-- you know, for the handheld stuff, you know, the hedge trimmers and the clippers and those types of things, it's well underway. I mean, we're talking, you know, 35%, 40% or more. For the items with wheels, like riding mowers and push mowers and those types of things, it is, you know, nominal. It's almost-- there's almost no penetration of electric.

And we, Stanley Black & Decker, are going to be the company that electrifies the lawn and garden market. We're buying-- we have an 80%-- an option to acquire the remaining 80% of a company called MTD, which is an Ohio company, one of the big lawn and garden equipment manufacturers that serves retail and the pro.

And we're going to take our knowledge of motor technology, battery technology and controls, and their knowledge of how you produce those types of units, those big large riding mowers and push mowers, and we're going to combine them. We'll be executing this option most likely in July, August, and we'll own 100% of this company. It's about a $3 billion company. And then we're off to the races. We're going to make it happen.

BRIAN SOZZI: All right, so there is hope for our very own Julie Hyman. Jim, before we let you go, how is the chip shortage impacting what you do?

JAMES LOREE: Well, there's a number of shortages that we're dealing with. The first one was battery cells, and we've solved that problem. And the chip shortage, where we're at with that is it's not constraining us at this point at all. But if we start to get to a point where we're a couple hundred million dollars more of growth per quarter, it's going to be challenging.

So we're really working on-- on that. But right now, we can go at this run rate and a couple hundred million dollars more of revenue at the run rate before we start to get impacted. So I think we're in good shape for the remainder of this year, and we're working on solving 2022 right now, assuming that, you know, this red-hot growth continues in the industry.

BRIAN SOZZI: All right, we'll leave it there. Stanley Black & Decker CEO Jim Loree, always good to see you. Stay safe. Have a great weekend.

JAMES LOREE: Thank you. To all of you, thank you. Take care.