Welcome to the Q2 2016 Stanley Black & Decker, Incorporated Earnings Conference Call. My name is Nicole 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 Relations and Government Relations, Greg Waybright. Mr. Waybright, you may begin. Greg Waybright - Vice President-Investor & Government Relations: Thank you, Nicole. Good morning, everyone, and thanks for joining us for Stanley Black & Decker's second quarter 2016 conference call. On the call, in addition to myself, John Lundgren, our Chairman and CEO; Jim Loree, our President and COO; and Don Allan, our 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 apps. A replay of this morning's call will also be available beginning at 2 p.m. today. The replay number and the access code are in our press release. This morning John, Jim, and Don will review our second quarter 2016 results and various other matters, followed by a Q&A session. And consistent with prior calls, we are going to be sticking with just one question per caller. 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's therefore possible that actual results may materially differ from any forward-looking statements that we might make today. We direct you to the cautionary statements in the…

Thank you. We will now begin the Q&A session. Our first question comes from the line of Robert Barry of Susquehanna. Your line is now open.

Hey, guys, good morning. John, best of luck to you going forward and, to Jim, congratulations. John F. Lundgren - Chairman & Chief Executive Officer: Thank you. James M. Loree - President & Chief Operating Officer: Thank you.

I was wondering if you could provide some detail on what your assumptions are for growth in the various verticals within fastening and for industrial infrastructure in the back half or for the year. Donald Allan - Chief Financial Officer & Senior Vice President: Sure. I'd be happy to do that. So, in the Industrial segment, we were down 6% here in the second quarter. We don't expect the decline to be as severe in the back half of the year, probably low-single-digits, with it being a little larger in the third quarter and smaller in the fourth quarter as the comps get easier, in particular related to the electronics business. When you look at the different pieces, we do feel pretty good about our automotive fastener business in the back half of the year. It's seen a strong performance in the first half, up mid-single-digits as far as organic growth. And then in the back half, we expect that trend to continue as we get over a more difficult comp related to some of the equipment sales that we had in the first half related to the automotive systems business. The electronics business will continue to be a pressure point in the back half, although as the comps will slowly get easier as time goes on. We would expect that to be a rather large negative V in the back half as it has been in the first half and the general industrial business will kind of be a low- to mid-single-digit decline, as well, in the back half.

Thank you. Our next question comes from the line of Joshua Pokrzywinski of Buckingham Research. Your line is now open.

Hi, good morning, guys. And I guess congratulations to John and Jim both. John F. Lundgren - Chairman & Chief Executive Officer: Thank you. James M. Loree - President & Chief Operating Officer: Thanks.

On the Tools margins, clearly strong execution this quarter. I think a host of things, productivity and likely price cost included. Can you maybe give us a bit of a trend line? I know you have FLEXVOLT launch costs here in the second half and FX, but maybe excluding those out, how should we think about incremental margins or how should we think about the margin from here and maybe the line of sight beyond some of the 2016 launch costs? Just given the outperformance that we saw in this quarter. Donald Allan - Chief Financial Officer & Senior Vice President: Yeah, I think obviously the second quarter was an outstanding margin performance and organic growth performance, as Jim mentioned, for Tools & Storage. As we look at the back half, we still see very strong margins. We're certainly not going to see 18.8% at this stage because of some of the reasons that you mentioned. We're also beginning to anniversary the commodity deflation that we've experienced over the last year. That's been a strong benefit for the business and will not be a continued incremental benefit on a go-forward basis. And then FLEXVOLT, as you mentioned, is an area that is an initial pressure point to gross margins as we roll that out. Over time, they will be accretive to gross margins as we get deeper into the launch next year, and then we also have launch costs that are specific to this program that will continue out through the remainder of 2016, which means that the gross margins in the back half of the year will be roughly somewhere between the 15.5% to 16.5% range, most likely because of those dynamics. The ongoing margins, however, from an incremental margin perspective will continue to be healthy and consistent with what we've said in the past, that as we see organic growth, incrementally we would expect 30% to 35% drop through in margins, sometimes affected by specific quarter activities where it might be slightly lower if we're making investments or if there's certain types of mix that occurs. But our trend line over the long term for Tools & Storage is still positive. They will likely end the year close to 17% operating margin, if not slightly over. We'll see how the year progresses. And we would expect that they would continue to improve from that on a go-forward basis.

Thank you. Our next question comes from the line of Joe Ritchie of Goldman Sachs. Your line is now open. Evelyn Chow - Goldman Sachs & Co.: Good morning, John, Jim, congratulations. This is actually Evelyn Chow pinch hitting for Joe. Maybe just focusing on the gross margins for the company as a whole. They were incredibly strong this quarter. In your release you cited a few different factors and you mentioned commodity deflation has helped. Can you provide some more color on the relative contributions of the drivers you cited and the sustainability of this kind of expansion? Donald Allan - Chief Financial Officer & Senior Vice President: Yeah, sure, I'll take it. You want to take it Jim? James M. Loree - President & Chief Operating Officer: Yeah, I'll take it because this is something that we work really hard on at this company. You think about the gross margin performance this quarter in light of the FX pressures that we had, which almost totaled $40 million, it is really remarkable that we've been able to achieve this kind of accretion in the gross margin rate and what it really derives from working on everything that we possibly can to impact the margin rate in a positive way. And that starts with productivity and working hard on four wall cost productivity, working hard on vendor productivity, G&A productivity, our functional transformation initiative starting to pay some dividends, the commercial excellence initiative from SFS2.0, we're driving price realization, price optimization, all these things kind of combined, we are very, very focused on managing mix, focused on managing the lifecycle of new products, or products in general, and introducing new products at higher margins as the more mature products kind of margin has a degrading tendency over time. It's a combination of all those things, and we continue to target gross margin improvements over the medium-term, as well, and I think you'll see that over the coming years as a result of everything I just mentioned.

Thank you. Our next question comes from the line of Rich Kwas of Wells Fargo Securities. Your line is now open.

Hi, good morning. Congratulations and best wishes, John and congratulations, Jim. John F. Lundgren - Chairman & Chief Executive Officer: Thank you. James M. Loree - President & Chief Operating Officer: Thanks, Rich.

I'm going to squeeze in a couple here. Just on the inflection in margin and Security. Just thoughts around if this is a true inflection, any puts and takes as we think about the back half, sustained momentum, comments along those, and then on electronics with the one customer being such a headwind, what's the focus on progress in terms of trying to diversify the customer base? Thank you. John F. Lundgren - Chairman & Chief Executive Officer: Don, go ahead. Let me just say, Rich, you're talking two different businesses: Security and then you're moving to Fastening. We'll get them both. But the sequential consistent improvement in Security, it's real and it's here to stay. In Europe, the team has really embraced the need to grow organically and they've done it consistently in a very tough market. U.S., the focus has been more on operational excellence, field efficiency, and both teams focusing on what we've asked them to focus on and they're doing a great job on both fronts. But I'll let Don answer your question specifically. Donald Allan - Chief Financial Officer & Senior Vice President: Yeah, so, John is absolutely correct that the Security business continues to generate a positive momentum around various initiatives, specific to profitability. We've talked about several of them over the last year or so on different occasions as driving more efficient field productivity, really trying to streamline their SG&A, to achieve certain objectives over the long-term as a percentage of revenue, and they continue to make progress in that regard. And combining that with the fact that they're being much more disciplined around pricing and the new business that they enter into so they ensure the right levels of profitability on new business, have allowed us to continue to increase the profitability.…

Thank you. Our next question comes from the line of Michael Rehaut of JPMorgan. Your line is now open.

Thanks. Good morning, everyone. And also, I'd like to add my congrats to Jim and John. My question is focused around raw materials. If you could just kind of remind us what the changes in raw materials has impacting 2016, if that's changed at all with the move in steel prices, and I know it's obviously very early on right now, but maybe how to start thinking about, with the recent move in steel, how that may or may not impact 2017 and if there's certain hedges or pricing offsets that you think are in your wheelhouse to offset any pressures into next year. Donald Allan - Chief Financial Officer & Senior Vice President: Sure, Mike. This is Don. I'll take that. We think this year we're probably getting about $40 million to $50 million of benefit from commodity deflation, and a lot of that primarily is in the first half, as we're really starting to anniversary some of those benefits that we started experiencing last summer. And so, in the back half of the year, we don't expect incremental improvement and we might even see a little bit of pressure in certain commodities as you just touched on a couple of them but we don't expect that to be material in the second half of the year. We have mentioned previously that we had locked into a lot of commodity-based contracts with certain key vendors earlier this year for the remainder of 2016. So that will clearly probably create a little bit of pressure in 2017. At this stage, we think it's a manageable number, below $25 million for the full year, but obviously we'll continue to monitor commodity prices as we always do throughout the remainder of 2016, but that's kind of where we are at this stage.

Thank you. Our next question comes from the line of Tim Wojs of Baird. Your line is now open. Tim R. Wojs - Robert W. Baird & Co., Inc. (Broker): Hey, good morning, everybody, and I'll add my congratulations to Jim and John as well. I guess just quick, a two-part question on Security. First, in North America, that business has organically been declining for the past few quarters, and I noticed that the tone was a little bit more positive on orders and backlog. So, maybe if you can just talk a little bit about when we can see an inflection in growth in the North American part of Security. And then second, just given your improvement in Europe, could you talk about what the margin differential is now between North America and Europe? John F. Lundgren - Chairman & Chief Executive Officer: Sure. Jim is going to take that. We've had the good fortune of spending a lot of time with both those businesses, Tim, just very recently, so we're really up to speed. And, Jim, why don't you take it? James M. Loree - President & Chief Operating Officer: Sure. The simple one is the second question which is about 400 basis points of difference at this point in time. And as far as the volume in North America, they've been working really hard on getting their field execution up to a level where the orders and the backlog can be installed efficiently and in a timely fashion. And I'd say the one thing that gives us the ability to be at what we think is an inflection point is the fact that the field has made a lot of progress in North America, so we actually haven't had that much of an issue generating the orders, and we have the ability to go out and generate even more orders. However, we've been throttling that a little bit as the field was sort of a bottleneck. And so that's really the answer, is the reason we're more optimistic about our ability to generate modest growth in electronic security in North America is because the field execution is improving, and the field capacity is, therefore, improving. Now, just as a side note, there's several components of North America which are doing just fine, in terms of growth, including the automatic door business and mechanical security, so this is the third leg of the stool, if you will, and once we get that moving in a positive direction, I think we'll be in a similar situation that we are in Europe, where we're generating organic growth on a more consistent basis.

Thank you. Our next question comes from the line of Mike Dahl of Credit Suisse. Your line is now open. Michael G. Dahl - Credit Suisse Securities (USA) LLC (Broker): Hi, thanks, and congratulations, John and Jim. Wanted to also ask about Security, and it looked like there were some small bolt-on recurring revenue acquisitions in the quarter. So just wondering if you could give a little more color on that, and if we should interpret this as kind of a sign that you feel comfortable enough that this business is on solid footing that you'll embark on – or you'll re-embark on some inorganic growth initiatives within Security? James M. Loree - President & Chief Operating Officer: We actually do feel that the business is on solid enough footing in both North America and in Europe to digest a few small bolt-on acquisitions. And in fact, we are thinking along the lines that these types of bolt-on – RMR acquisitions, basically, is what they are – will supplement the installation business in terms of generating RMR, and that one of the keys to success in electronic security is to get the RMR portfolio, that's recurring monthly revenue for those that are unfamiliar with that term, but to get that portfolio sequentially increasing every quarter in both of those geographies. And the combination of installation growth and attrition management and small bolt-on acquisitions – we almost think of them as if they were CapEx for growth in the Security business. So you'll continue to see small ones. As far as major acquisitions in Security, no, there's nothing on the horizon in the medium-term – short- to medium-term, for that. We're actually enjoying working on operational excellence and execution in the business to – at the customer level in particular, to ensure that while all this consolidation is going on in the industry, we are providing the customers with the absolute best value proposition possible. And we think that we can continue to gain share – we're gaining share already in Europe and I think we can continue to gain share in Europe, and in the North American business I think we can begin to gain some share along the way with that as a strategy.

Thank you. Our next question comes from the line of Jeremie Capron of CLSA. Your line is now open.

Hi, good morning. James M. Loree - President & Chief Operating Officer: Good morning.

John, Jim, congratulations and all the best in your new roles. John F. Lundgren - Chairman & Chief Executive Officer: Thank you, Jeremie.

Have a question on the Tools business. I think you made some pretty positive comments regarding the inventory situation in some of the large distributors and also point-of-sale data, so if you could come back to those comments and maybe provide a little more color here. And also, I'd like to hear how we should think about quantifying the impact of the FLEXVOLT launch going into the end of the year, and the next year. What kind of numbers and benchmarks are you looking at to measure the success of FLEXVOLT? Thanks. John F. Lundgren - Chairman & Chief Executive Officer: Sure, Jeremie, it's John, I'll start and turn it over to Don. In terms of inventories, inventories are in great shape, both from our perspective and our customers'. I think it's important to note that our large customers have done a really, really good job mining data, working with us in a collaborative – with all their suppliers, but certainly us among their largest, in a collaborative manner, to get weeks at retail down to the 8 to 9 range, when historically 10 to 12 was as well as they could do without being out of stock. So the silver lining in the cloud for us is retail inventory – for us and our customers – retail inventories are at about their lowest levels that they've been in years, but despite that sell-off or decline in inventory, we've been able to grow nicely, and from the customers' perspective, in-stock is as good as it's been. Our fill rates are as good as they've ever been. So it's really the power of sharing the data on a collaborative basis, and sell-through remains good. So we see no issues in terms of inventory adjustment going forward. What I'll say on FLEXVOLT…

Thank you. Our next question comes from the line of David MacGregor of Longbow Research. Your line is now open.

Yes. Good morning, everyone, and congratulations, gentlemen, to you both. My question was with respect to the European Tools & Storage growth. You talked about new products, you talked about expanded retail distribution. I guess I'm just wondering if you could talk a little bit about the sustainability of that growth and maybe how much runway is left with the retail distribution side of that or just deconstruct the drivers and talk about the sustainability. James M. Loree - President & Chief Operating Officer: Yeah, and anybody that had 14% organic growth in Europe and said it was sustainable would not be credible. So I mean, I think that's a very special performance. And we're on the heels of the two years of 7% comps which makes it even more challenging. But having said that, the European Tools team is literally on a rampage, a growth rampage, and the environment is the big unknown over there and the success of FLEXVOLT is also a big unknown. So it's difficult to say – peg a number. But I think the one thing that we can say for certain is that whatever the market is, we will continue to outperform it over there and continue to gain share for the foreseeable future.

Thank you. Our next question comes from the line of Mike Wood from Macquarie. Your line is now open. Mike Wood - Macquarie Capital (USA), Inc.: Hi. John, I hope you enjoy your retirement, and, Jim, congratulations. My question is on the innovation in Tools. Is the 1% or so price gain that you've been reporting sustainable and part of your internal goals going forward? And is there any potential for bigger innovation in Hand Tools to move the needle on the 2% growth there that is well below the growth you're seeing in Power Tools? Thank you. James M. Loree - President & Chief Operating Officer: Starting with the innovation in Hand Tools, the innovation in Hand Tools is quite robust, actually, and it is really remarkable how much innovation there is in products that are relatively simple – seemingly relatively simple. The reason the organic growth in Hand Tools is a bit lower right now is not because of any lack of innovative growth because there is a fair amount of that, most notably the lasers in this past quarter. The pressure in the Hand Tools business derives largely from the weakness in the industrial channels, in particular, our Proto branded products are relatively – have negative offsetting the positive growth in the other area. And then the first part of the question? Why don't you just repeat the first part of the question? John F. Lundgren - Chairman & Chief Executive Officer: Probably can't... (54:23) James M. Loree - President & Chief Operating Officer: Can you remember what it was?

One moment. John F. Lundgren - Chairman & Chief Executive Officer: 2% James M. Loree - President & Chief Operating Officer: I think it was more around... (54:31) John F. Lundgren - Chairman & Chief Executive Officer: It was just Hand Tools, 2%. Could we ramp up organic growth on Hand Tools, which is 2%, which is below Power Tools. And I think you got it. James M. Loree - President & Chief Operating Officer: Okay. I hope so, if not, Mike, obviously you can follow-up with Greg, because I know after your question you didn't have access to speak again.

All right. And our next question comes from the line of Dennis McGill of Zelman & Associates. Your line is now open.

Hi, just a quick two-parter, I guess just on the transition. Jim, is your COO role going to be backfilled either immediately or over time? And then just looking for an update with respect to how you guys would phrase the Security strategy now. I think we're about a year past the initial review. It sounds like status quo, but just wanted to hear how you're thinking about it. James M. Loree - President & Chief Operating Officer: I'll answer the first part of the question and then I'll turn it over to Don who will give his regular answer to that question. The answer is, no backfill for the COO role right away. There may at some point in time as the succession plan for me is developed and so on, it may be filled, it may not be, that all remains to be seen at this point. And then, Don, on the Security portfolio strategy. Donald Allan - Chief Financial Officer & Senior Vice President: Yeah, absolutely. So, you're right, Dennis, we made an announcement a little more than a year ago about our evaluation of this portfolio. We, frankly, really began that evaluation in the early parts of this year, with last year more focused on continued improvement of the operational performance across the board and we're starting to see some of the fruit from that labor. And we had a good discussion at this board meeting and we will likely have another one in October, hopefully that will solidify our discussion and we'll be able to announce something post-October. But we've looked at obviously the three options we've discussed previously, which is keeping the entire business, potentially selling or spinning the entire business, or divesting a portion of it and we specifically had mentioned our mechanical lock business as a potential candidate for that. So we continue to evaluate those. I would say that, it's getting very close to the finish line, and I would imagine in the next 90 days to 120 days, we'll have something very clear to say on that.

Thank you. And our next question comes from the line of Jeff Kessler of Imperial Capital. Your line is now open.

Thank you. And it's interesting – firstly, congratulations to both John and congratulations to Jim. Keeping the Security questions going, which is kind of unusual for all these – after all these years, looking at the various components of what makes up the electronic security side of your business, and looking at some of the smaller parts of it, that have been added and you've been showing off at tradeshows such as healthcare, and Sonitrol and tracking, things like that. You're talking still about fairly slow growth, but consistent growth, on the electronics side. Is there going to be a point at which some of these higher-growing areas begin to start affecting the overall growth of electronic security, particularly in North America, or indeed in Europe if they begin to add to that, as you begin to try to start adding more value, and offering more value to your customers out there? John F. Lundgren - Chairman & Chief Executive Officer: The answer is yes, but I'll let Jim give you a little more detail. James M. Loree - President & Chief Operating Officer: This industry that we're talking about, electronic security, is in very rapid flux right now, as I think most people know. And the IoT, in particular, the cloud, advanced analytics, these types of things are all impacting our industry. And, in fact, our industry is extremely well positioned to exploit some of those technological advances. And we're working very diligently and aggressively on several verticals, including healthcare and retail in particular in the United States, and in Europe we're taking a bit of a different approach where we're working more on specific applications and then trying to market those, generally kind of in the $1 million to $5 million annual revenue range, whereas the healthcare and…

Is what you're doing in healthcare and in retail, is it portable to other verticals? James M. Loree - President & Chief Operating Officer: I would say it's probably 60% to 70% portable. Lots of times there's platforms that and certain technologies like IoT, cloud, analytics that you have those capabilities within the organization, but then there's application-specific activities that have to be tailored to specific applications, whether it's in a hospital or whether we're working on electronic article surveillance in a retail establishment. So that part of it, I'll call it the other 40%, is not portable. John F. Lundgren - Chairman & Chief Executive Officer: Yeah, Jeff, said differently, and you know this as well as anyone, in any vertical about 50% of what we do is standardized across every vertical, but about 50% of what we do in a vertical is unique to that vertical, which is why we go to market that way. But to Jim's point, a whole lot of what we're doing is portable and we're looking forward to leveraging those opportunities.

Thank you. I'm showing no further questions at this time. I'd like to hand the call back over to Greg Waybright for any closing remarks. Greg Waybright - Vice President-Investor & Government Relations: Great. Nicole, thank you very much. We'd like to thank everyone again for calling in this morning, for your participation on your call and your questions and your comments. And, clearly, please contact me if you have any further questions, and thank you.

Ladies and gentlemen, thank you for participating in today's conference. That does conclude today's program. You may all disconnect. Have a great day, everyone.