Welcome to the Q1 2015 Stanley Black & Decker Incorporated Earnings Conference Call. My name is John and I’ll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. I’ll now turn the call over to the Vice President of Investor and Government Relations, Greg Waybright. You may begin.

Thank you, John. Good morning, everyone, and thank you all for joining us for Stanley Black & Decker's first quarter 2015 conference call. On the call, in addition to myself, John Lundgren, Chairman and CEO; Jim Loree, President and COO; and Don Allan, Senior Vice President and CFO. Our earnings release, which was issued earlier this morning, and a supplemental presentation, which we will refer to during the call, are available on the IR section of our website as well as on our iPhone and iPad app. A replay of this morning's call will also be available beginning at 2 p.m. today. The replay number and access code are in our press release. This morning, John, Jim and Don will review our fourth quarter results and various other matters, followed by a Q&A session. Consistent with prior calls, we’re going to be sticking with just one question per caller. And as we normally do, we will be making some forward-looking statements during the call. Such statements are based on assumptions of future events that may not prove to be accurate, and as such, they involve risk and uncertainty. It is, therefore, possible that actual results may differ materially from any forward-looking statements that we might make today. We direct you to the cautionary statements in the 8K that we filed with our press release and in our most recent '34 Act filing. I will now turn the call over to our Chairman and CEO, John Lundgren.

Thanks, Greg, and thanks everybody for joining us this morning. We’ve got a strong quarter and I think a lot of encouraging news that we’re very much looking forward to sharing with you and then taking your questions. During the quarter, revenue expanded 8% organically. Total growth was 1% as the topline impact of foreign currency was negative 7% in the quarter. Our Tools, Storage and Engineered Fastening businesses all continued strong momentum. They both grew in the double digits organically and Security built up the momentum from the fourth quarter and posted 2% organic growth as North America and emerging markets as well as Europe grew organically within the quarter. I won’t dwell on those numbers because Jim is going to dive into much more detail on the segments in just a minute. Both gross and operating margin rates expanded in the first quarter, 50 basis points in gross margin and 120 basis points in operating margins. They increased due to higher volume, along with sharp cost focus and price realization delivering operating leverage, despite $50 million of foreign currency pressure just within the quarter. Earnings per share were $1.07, the same number versus flat in the first quarter of 2014 as the strong business performance most notably in Tools and Storage, offset higher plant restructuring and tax rate. Due in part to our strong fourth quarter cash flow in conjunction with our previously communicated equity derivatives, we executed repurchase actions that reduced the share count by approximately eight million shares in the first quarter. This was a meaningful acceleration versus our prior plan. We are also reiterating full year 2015 guidance for earnings in the range of $5.65 to $5.85 on a GAAP basis. That’s inclusive of $0.25 a share in restructuring charges. It represents a 5% to…

Thank you, John. I think this first quarter performance on the heels of a very strong showing in 2014 is indicative, not only of how far we have come in pursuit of exceptional value creation, but also how much potential there is ahead of us. The title of our opening slide this morning is, Accelerating Organic Growth and Margin Expansion. That is a topic we are very excited about here as a company. A record 8% organic growth is notable considering that the US is one of the only major world economies with legs. European economic growth is still spotty at best and emerging markets in the aggregate are weak and getting slightly weaker. 120 basis point operating margin expansion speaks clearly to the underlying operational strength and volume leverage potential of the company, especially reviewed in the context of overcoming well over 100 basis points of year-over-year currency headwinds. Our ability to upgrade total year organic growth guidance to 5% and hold EPS guidance in the 5% to 9% growth range despite total FX headwinds of between $1 to $1.10 a share, means that the underlying organic EPS growth of the company for 2015 is expected to be somewhere between 25% and 30%. Our global tools franchise is on a tear, gaining share and hitting on virtually all cylinders. Our large, highly profitable Engineered Fastening business, has fully digested the successful Infastech acquisition and is growing at rates well above market. Security is now generating positive, albeit modest organic growth and is tracking to previously communicated improvement benchmarks and thus offers more in the way of future value creation upside than downside. Overall we emerged from Q1 2015 with strong operating momentum and conviction that despite one of the tougher operating environments in recollections, we can continue to perform…

Thank you, Jim. I’m going to start by spending a little time on our first quarter free cash flow performance, which was an outflow of $243 million. This was relatively consistent with prior year and typical of normal seasonality that we see in our company where our inventory levels rise, especially in the Tools and Storage business to ensure we’re adequately prepared for Q2 and Q3 demands of key customers, in particular in a mature or developed market. However, the incremental investment we made in Tools and Storage inventory during the first quarter of this year was modestly higher than normal as we managed through the west coast port strike and we prepared for strong organics growth to re-occur in the second quarter of this year. The core SFS principle Jim just mentioned require agility to respond when business conditions change, such as strong organic growth such as we have experienced over the last three quarters. SFS has enabled us to reach working capital and asset efficiency levels that are considered world class compared to other industrial and security peers. SFS continues to assist us on our journey to 10 times working capital turns. But we want to ensure that we are agile in changing market conditions, just like we saw over the last few quarters. Due to our confidence in our ability to generate at least $1 billion of free cash flow during 2015, as John mentioned, we were able to accelerate our share repurchase activity relating to our repurchase program that we announced at the end of 2013. By using a mixture of cash repurchases and equity derivatives, we took actions to lower the share count by roughly 8 million shares within the first quarter and 9.6 million shares since the beginning of the fourth quarter of 2014.…

Great. Thanks Don. John, we can now open the call to Q&A, please.

[Operator Instructions]. Our first question is from Jeffrey Sprague from Vertical Research.

Thank you very much, gentlemen. You made a very busy day a little easier here today. I have one question really on your cost actions and kind of thinking about the holistic nature of them. And really the nature of my question is, these offsetting actions you are taking, would you view them all as structural and permanent? Or should we expect some of this to come back the other way as perhaps the FX pressures hopefully wane at some point in the future? If you could give us a little context around that, I think it would be very helpful. Thank you.

Yeah, absolutely. So we embarked on this journey of cost actions in a more significant way about a year and half to two years ago and one of our main objectives was to take actions that were permanent in nature and not temporary that would result in some type of snapback of costs in the future. We’ve been targeting areas such as indirect spend, which is basically all costs that are non-people related and putting forth policy changes, structural changes, procurement changes, etc., that are driving a lot of those benefits. And they’re permanent changes that we expect to be maintained over the long term. The other thing that we’ve done is we’ve taken specific headcount restructuring actions related to the combination of our CDIY and IAR business for Tools and Storage. We’ve taken some corporate headcount actions, as well as some of our other businesses that are more surgical in nature that will allow us to really continue to focus on productivity and driving a more efficient P&L Because of this approach and these different types of actions, it really gives us confidence that it’s not of the nature that we are just pushing down costs on a temporary basis and we will experience some snapback in the future.

And our next question is from Rick Kwas from Wells Fargo.

Good morning, gentlemen. In terms of the competitive environment with regards to currency, any changes you've noticed here in the US with competitive actions from foreign-based entities? And then quick follow up, hedging activity for 2016, Don, does this leave you in a position where you're going to still get hit in 2016 unless you put incremental hedges in? How should we think about that as we look forward here? Thank you.

Yeah I’ll take the latter one first. As I mentioned, we’ve done a lot of hedging activities specifically around the Euro and the Canadian dollar. The benefit we are getting for that here in 2015 or the neutralization I guess of currency is about $70 million. And so that would be an impact that we would see in 2016. We’ll also have a modest carry over impact by some of the recent currency movements we’ve seen. So we think going into next year, there is about $100 million headwind for currency that some of which we are focused on how we deal with through hedging activities, but we are also focused on what cost actions we can take as we go into 2016 to offset that impact as well. Similar to what we’ve done over the last two years, we are going to take a very similar approach to that as we embark into 2016 as well. And Jim maybe you want to answer the comment on …

On the competitive environment in the US and whether there have been any changes related to the FX dislocation that’s occurred. Most of our, in fact all of our major competitors have global footprints that are relatively similar. Our major European based competitor has a little bit more European footprint in terms of supply chains and our major Japanese competitor has a little bit more in Japan. But we all have a lot in China, Mexico and other low cost areas around the world. So there really isn’t a major structural change to the cost competitors that is created by the dislocation. I think we are all responding -- all competitors are responding as you might expect, which is in the emerging markets where we are shipping into those markets from dollar stable kinds of -- or dollar, like Chinese or dollar denominated supply chains, there is a fair amount of price appreciation going on to partially offset the currency impact and then the US is always brutally competitive and continues to be brutally competitive.

Our next question is from David MacGregor from Longbow Research.

Yes. Good morning. Congratulations on a great quarter and all the progress. I guess the CDIY, your incremental margins were substantially larger than I'd expected and obviously there's an awful lot going on in that segment right now. But I guess the question is just how much of this is from the combination of the IAR business and are these contribution margins expected to sustain through the rest of the year?

David, very fair question. There are cost benefits to the combination of the IAR business. They’re quite small relative to the volume leverage particularly the advantage of a prolific new product development process that really was founded or grounded in our CDIY business. It’s now incorporating IAR. So roughly three quarters, two thirds of the benefit and ability to maintain margins is due to the volume leverage new products and incremental margins and only a small portion would be due to the -- there are some cost benefits, but that is truly the icing on the cake rather than the driver for putting these two businesses together.

But as far as the impact in the quarter or in the past couple of quarters, it’s been nil. This is just getting going, so the impact that John just described is yet to come.

Our next question is from Robert Barry from Susquehanna. Please go ahead.

Good morning. Congrats on a very solid quarter. Wanted to just talk a little more about the organic growth outlook. You raised it by 1 to 2 points and wanted to clarify how much of that is stronger end markets versus better momentum on your own initiatives and to the extent that it's the markets, where are you seeing any incremental strength or weakness?

Yeah, I’ll take a shot at that and I’ll certainly ask Jim or Don to chime in. It is overwhelmingly share gains in our case. 50% of our revenue roughly is in the US. Those markets are slightly stronger than we’d anticipate. But you saw our Global Tools and Storage business up 12% in the quarter. So there’s significant share gain there. Europe as I said in my piece of the presentation, globally the markets are up 2% at best. Some estimates are flat and we are up six 6%. So again, it’s easily 3X the market growth rate. Now Tools and Storage business is up more than that. So again share gains. I think the wild card is in the emerging markets, which collectively represent about 20% of our revenue. They’re up but at a much lower rate as Jim mentioned in his piece of the presentation. Certain markets like China and Russia are down, but in total the emerging markets are growing at low single digits and so are we. So simply said, the overwhelming majority of what you’ve seen in our numbers is share gain and again it’s focused in our Global Tools and Storage business and our Engineered Fastening business.

Our next question is from Nigel Coe from Morgan Stanley

Hey, good morning guys. It's actually Mike Sang in for Nigel. I didn't see capital deployment guidance and I apologize if you talked about it, but you didn't change your free cash guidance, but to the extent you do better on free cash this year, how should we think about where you'll spend that incremental upside?

This is Don. We didn’t specifically give guidance related to capital deployment. What we have said about this year though is our primary objective was to complete our program of up to $1 billion of share repurchase and you could argue that we’ve pretty much done that with $900 million of it completed at this point in time. We also said that we have opened up our -- reopened our funnel of BD opportunities over the last six months or so and we are evaluating different things and we may have some types of small acquisition later in the year of modest size. But that’s really about what the plan is at this stage and we feel good about where we are. If we outperform our cash flow, we’ll have to evaluate the timing of that and would make sense based on what’s happening in BD as well as what our stock is trading at that point in time.

Our next question is from Mike Dahl from Credit Suisse

Hi, thanks and quite a nice quarter again. Some pretty challenges conditions with the FX side. I wanted to go back to one of the prior comments on walking around the regions. John, I think you've been clear that some of these European comps, a lot of it's been driven by some tremendous share growth and new product innovation. What's the expectation as far as -- I know you mentioned that you think it'll moderate, but has the continued strength caused you to push out your expectation for how long you can keep a four or five point premium to the market growth on that side of the business?

Sure. I'm going to have Jim walk you through that, but remember we‘ve got a stated objective of growing at 2x the rate of the market and we’ve been doing a pretty good job in our Global Tools and Storage business. But Jim, I know you want to shade more light on that.

It's a great question because the comps are -- we are comping against two years organics growth in the tool business that’s averaging about 7% per quarter. When you look at the market growth and you look at that you say how long can this go on? It's very fair question, but I would say that the team in European tools in particular, but also in Engineered Fastening, those two management teams are really, really growth oriented teams. And the ability to gain share is not constrained necessary by structural conditions. If they keep executing at that level, then I think that it will be in that 4% to 6% range for a while. And the other thing about Europe is that even though the markets haven’t picked up, the optimism in Europe is palpably higher. If you talk to business people in Europe, there’s a lot of hope I guess is the best phrase or word I can think of, but not necessarily with our people. But when you just talk to people in general in Europe, there’s a sentiment, a more positive sentiment than we’ve seen in a long, long time. That may actually help with the market and may over time push the market up a few points and certainly that would be helpful as well. But the reality of tough difficult comps is a real one and it's one where we don’t necessarily push our expectations to organic growth much higher than say 4% to 6 %. I think achieving that 2x market growth is something that we can continue to do for a while.

Our next question is from Jeff Kessler from Imperial Capital

Not to steal the thunder from Investor Day, but could you go over -- be a little bit more specific as to the four parts of SFS 2 and how they impacted the first quarter, how you expect them to impact the year? What are -- specifically what are they going to do? And number two, put some numbers to that to flesh it out.

Sure. That’s kind of like Investor Day, but I'll give you a quick snapshot.

Yeah. That's all I want.

The four initiatives, Digital Excellence, Breakthrough Innovations, Commercial Excellence, and Functional Transformation, we’ll start with functional transformation is an approach that we are taking to reduce the cost of our staff functions if you will, so increase their efficiency while maintaining their effectiveness, which is very high. The functional transformation will yield benefits over a multi-year period, but really at the moment we are investing in this. There’s an actual expense related to it in the quarter and we’ll get into that at the investor day. The other three are intended to drive growth and they all require some investment, but the functional transformation is a way to fund that investment without affecting our day to day operations in a negative way. Digital Excellence, we are doing a fair amount of work in that area to prioritize where we’re going to make our investments. So there’s not really any revenue impact from that at this point in time. There are some expenses associated with that. I think the one that has the most near term impact is Commercial Excellence because commercial excellence includes several different elements. One of those element is pricing effectiveness and you probably have noticed over the last year or so that we have been averaging about a point in price as a company and that is about a point higher than we have been doing historically. I would say virtually a large portion of that differential impact is associated with the Commercial Excellence initiative. There are many other parts to it. I think I used the term Commercial Excellence several times when I was discussing the CDIY or the Global Tool Business and they have really taken Commercial Excellence and each element of it and deployed it within that business to achieve some of their differentiated…

Jeff. Just let me tie that up in a bow without -- and Jim there I think did a very nice job of not stealing our own thunder for Investor Day because we’ve got a lot of communicate. We want communicate it very coherently and systematically all in the same place. But SFS or SFS 1.0 if you like was focused on operational excellence. We think we’ve done a very, very good job and working capital turns have doubled as a result of that. Eliminate ways to eliminate complexity, unless it adds a benefit that the customer is willing to pay for and so forth. You’ve heard us talk about it a lot. We think we’ve gotten it down. We’ve been at it about eight years and we think it truly, truly is imbedded in the DNA of this company. What Jim described is an effort -- in terms of when will the benefits come, we are paying as we go and I think Jim described that perfectly in terms of we’re investing in getting a little bit of benefit. The future benefits will come well down the road just like they have with SFS. But importantly, it is all designed to embed a growth culture, first establish an embedded growth culture within the company. If we look at all our long-term objectives, we’ve done a really good job meeting or exceeding all of them with the exception of organic growth, where over the years we’ve been at 3% to 4%, which is then about the industry average, about our competitors average, peer group average. Of late, we’ve stepped that up due to some phenomenal results from the incremental growth platforms and programs that Jim described. Long-term we are looking to drive that up and just embed it into our culture and have it become equally as important in our DNA as we think running our operations effectively and efficiently has become.

Our next question is from Jeremie Capron from CLSA.

Thanks and good morning. I wanted to follow up on your commentary on pricing. You had a full point of price gains in the quarter, and you sounded pretty dismissive in terms of any deterioration in the pricing environment globally, yet we're seeing a peeled down train in commodity prices. My question really is how sustainable do you think your price gains are for the remainder of the year and what sort of dynamics are you seeing in terms of your price cost. It looks like a nice tailwind here.

Sure. I’ll take that one. Yeah, we were very pleased as John mentioned with our price performance in Q1. We’ve talked about price as a company on and off over the last decade several times, but in the last year, year and half, we’ve really put a significant emphasis on gaining price in different ways across many of our businesses. It’s not always just about list price. It’s about other types of activities that happen with your customers and really trying to drive the maximum value associated with the product or the service that you’re providing to your customer. That emphasis has not changed. There has been a new dynamic as you mentioned in the last six months or so where commodities have moved in a certain direction it’s been a benefit to companies like us. The reality for us is the number is not overly significant. We touched on it briefly back in January. It’s roughly $50 million of benefits for us on an annualized basis. At this point in time, we continue to evaluate that as we go into next year and see what other opportunities we have. But it’s not really large enough to drive a significant pricing discussion across an $11 billion enterprise like our company. If that dynamic ever changes, then we could potentially have the circumstances that you described and we have gone through those cycles. But we have put significant routines and processes in place around pricing to really deal with these types of dynamics and make sure that we understand the levels of profitability that we are achieving on key products, especially what we call our A products and services that we provide and I don’t expect that focus to change. I actually expect it to accelerate and become more mature overtime.

And our next question is from Liam Burke from Wunderlich. Please go ahead.

Thank you. Your growth domestically on Tools and Storage was pretty strong. You have brought back manufacturing to the US. Has that program helped drive organic sales growth and do you plan on adding more capacity in the US?

Yeah, Liam I’ll take it. The answer is absolutely yes. Yes and yes. Simply said, we knew -- it’s turned to be not a terrific hedge in terms of production costs, because when we first brought this production back we had total delivered product cost. Obviously we took a lot of product off the water in time and improved our working capital turns. We had costs within flat to 5% and we are driving that down towards cost neutral relative to some of the low cost countries. It’s probably not at parity now given the strength of the dollar. That means, but we knew it was a good thing to do in terms of supply chain, satisfying our customers, keeping fill rates above 98%. We underestimated the positive impact customer reaction, particularly in the industrial distribution channel and what we call the two step channel of the, quite frankly the loyalty. It created the incredibly positive reaction from professional contractors and folks working in manufacturing facilities around the country. So we are very pleased with not only our ability to get the facilities up and running, we’re very pleased with -- we’re delighted by the customer reaction. As a consequence, we’re looking at two other opportunities near term in the US and again, it’s not going to be a step function ship, but it will be a gradual shift to expand two existing US facilities to produce more of our core products sold primarily in the US in those markets. More to come on that when it happens. We can’t get ahead of ourselves in terms of our own workforce then our planning and various negotiations are currently in process. But there is more to come. As I say it will not be gigantic, but it will be incremental or an evolution versus the revolution, but based on the results to date, we’ve got a lot of good reasons, qualitatively and quantitatively to do some more of this in the next 6 to 18 months.

Our next question is from next question is from Michael Rehaut from JPMorgan. Go ahead Michael with your question.

Mike, are you on mute?

Move to the next one.

We have a question from Dennis McGill from Zelman & Associates.

Good morning. Thank you. I just want to go back to an earlier question on the margin performance in the first quarter and the new tools and storage business. If you look year over year, that incremental margin being over 70%, and I think you talked to for the full year some of the drivers that are plus or minus. But was just hoping maybe you can talk to specific in the quarter, what the drivers were there and then how you think some of those drivers progress as you move through the year.

Sure, we can touch on that. As we touched on obviously, we saw significant operating leverage through the organic growth. We also are seeing really solid benefits from SG&A actions that I mentioned around indirect costs. We’ve seen some good pricing initiatives that drop all the way to the bottom line. It’s a combination of all those factors. Of course there’s also a little bit of commodity deflation occurring as well that’s beneficial to this particular business. Combining that with the fact that I mentioned at the beginning, which is organic growth, you have a high level of activity happening in our plants that occur because of higher organic growth in Q1 and expected higher organic growth in Q2 well above what we experienced in the first half or the first quarter of last year. So there’s certainly a leverage effect that’s even greater than you would normally see because of organic growth numbers that are basically double digit.

And I will now turn it back over to Greg Waybright for closing remarks.

John, thank you. We’d like to thank everyone again for calling in this morning and for your participation in the call. And obviously, please contact me if you’ve any further questions. Thank you.