Welcome to the second quarter 2017 Stanley Black & Decker earnings conference call. My name is Shannon and I will be your operator for today's call. At this time, all participants in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being is being recorded. I would now turn the call over to the Vice President of Investor Relations, Dennis Lange. Mr. Lange, you may begin.

Thank you, Shannon. Good morning, everyone. And thanks for joining us for Stanley Black & Decker's second quarter 2017 conference call. On the call, in addition to myself, is Jim Loree, President and CEO; Don Allan, Senior Vice President and CFO; and Greg Waybright, Vice President of Investor Relations. Our earnings release, which was issued earlier this morning, and the 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 PM today. The replay number and the access code are in our press release. This morning, Jim and Don will review our second quarter 2017 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's therefore possible that the actual results may materially differ from any forward-looking statements that we may make today. We direct you to the cautionary statements in the 8-K that we filed with our press release and in our most recent 34 Act filing. I’ll now turn the call over to our president and CEO, Jim Loree.

Okay. Thank you, Dennis. And good morning, everyone. Thank you for joining us. As you saw from this morning's news release, Stanley Black & Decker reported a strong second quarter and thus a solid first half as well. Each of our business segments contributed to robust organic growth, which was an impressive 7% for the quarter. Our team's continued focus on delivering top quartile financial performance, innovative products and solutions for our customers along with outstanding execution, resulted in a revenue increase of 10% to $3.2 billion. Results included a full-quarter contribution from the recent Newell Tools and Craftsman Brand acquisition, which supplemented our strong underlying organic growth. Tools & Storage led the way in total growth, up 17%. Up 8% organically. We believe about 2x the market with all regions once again contributing to the continued growth and share gain. The FlexVolt battery system continued its steady march to 300 million, making it the largest, fastest-growing cordless launch in our industry's history. Our tool business keeps delivering and exceeding expectations through commercial and operational excellence, including outstanding core and breakthrough innovation, while at the same time integrating two major transactions. 2017 is shaping up to be another superb performance by the entire global Tools & Storage team. The Industrial segment also delivered a significant outperformance for the quarter. Organic growth accelerated to 9% on the heels of 4% growth in the first quarter. In Engineered Fastening, we continued to see strong automotive system sales, in addition to higher industrial volumes, which supported an impressive 6% organic growth for the quarter. Our other industrial businesses, oil and gas and hydraulic tools – or infrastructure – each delivered 19% organic growth, outstanding performances, as commercial actions plus positive underlying markets benefited both the project and inspection activity within oil and gas…

Thank you, Jim. And good morning, everyone. I’ll now take a deeper dive into our business segments, which delivered another strong performance in the second quarter. Starting with Tools & Storage, revenues were up 17% in the quarter, due to 8% organic growth and an 11-point contribution from acquisitions which were partially offset by 2 points of pressure from the combined impact of currency and divestitures. The operating margin for this segment was robust at 18.1% as the benefits from volume leverage and productivity were more than offset by growth investments, price and inflation, resulting in a 70 basis point decline in rate versus last year's quarterly record rate. Once again, each Tools & Storage region and SPU posted positive organic growth in the quarter. On a geographic basis, North America led the way, up 9%. This strong performance was broad-based as we saw high single-digit growth in our US industrial and commercial channels and low double-digit growth within US retail, which includes our e-commerce customers. Additionally, Canada posted solid organic growth of 7%. The growth continued to be supported by new product introductions, which includes contributions from FlexVolt. I will provide a bit more color on FlexVolt in a few minutes. North America POS data was up mid-single digits, which is very impressive as it comped against mid-teen POS growth rate from the prior year. Additionally, inventory within our major customers were at or slightly below prior year levels, which gives us confidence that our growth has been supported by strong sell-through in the channel. Europe delivered another above-market performance, with the region posting 8% organic growth. Nearly, all markets contributed with double-digit performances in the UK, Benelux, Iberia and Eastern Europe. The European team continues to be the model in our company for commercial excellence. The team has…

Okay. Thanks, Don. So, to recap, the second quarter built upon the strong start to 2017. We continued to deliver above-market organic growth and robust operating performance. And as a result of the continued momentum, we increased the EPS guidance and continue to be excited about the opportunities to deliver value from the recent acquisitions, which are on track. And as we move into the second half now, our deep and agile leadership team is leveraging SFS 2.0 to deliver organic growth with operating leverage, continuing to integrate the Lennox, Irwin and Craftsman brands into our portfolio and generating that strong free cash flow. And we're encouraged by the results through the first half and we're encouraged by our ability to raise the outlook for the full year. We're also vigilant in the pursuit of our three overarching themes, to become known as one of the world's leading innovators, to deliver top quartile financial performance, and to elevate our commitment to corporate social responsibility, all of which supports the company in achieving our 2022 vision. Thank you. And we're now ready for Q&A.

We can now open the call to Q&A please. Thank you.

[Operator Instructions] Our first question comes from Nigel Coe with Morgan Stanley. You may begin.

Good morning, Jim and Don. Interesting comment about the cannibalization on FlexVolt $3 million growth, $100 million of cannibalization. I’m just wondering if you can just provide bit more color in terms of where you're seeing that cannibalization, what kind of margin mix you're seeing FlexVolt versus the products that are being cannibalized. And then maybe just second half this year and into 2018, how the product rollout [Indiscernible] rollout looks for FlexVolt?

Sure. So, as I mentioned in my comments, we see a path now for FlexVolt to be approaching $300 million before cannibalization. And cannibalization impact will bring the number down closer to $200 million net overall for Stanley Black & Decker. What we're seeing is that, as we've been communicating probably now for three to four months, is that we started seeing cannibalization in the spring, early springtime related to certain products that we were replacing on the corded side with FlexVolt technology. So, we still offer those particular products. However, when someone goes in to make a decision about 120 volt product or a 60 volt product, that is now something that can get through FlexVolt, they have a choice to make between the FlexVolt technology or the corded DᴇWALT technology. And so, as we anticipated, we expect to have a little bit of cannibalization and that's what we're experiencing. And we hope, as we end the year, maybe the cannibalization won't be as large as what we projected, but right now that’s kind of what we feel the trend will be at this stage.

Thank you. Our next question comes from Jeffrey Sprague with Vertical Research Partners. You may begin.

Thank you. Good morning, everyone.

Good morning.

Good morning. Just a question on Tools & Storage margin and really kind of a two-part question. First, I was wondering if you could just decompose in a little bit more detail the drivers, product spending and promotions, et cetera, in the quarter. But then, bigger picture, Jim, I was also wondering, clearly, you’ve got a balancing act between revenue growth and OP margin dollar versus margin rate. I was just wondering if you could put that in perspective for us, how you'd think you'd balance those two and maybe what is normalized margin trajectory for the Tools & Storage business?

Yeah, I’ll have Don tackle the first part of your question, which I’m not sure he can add too much more color to, but we'll have him address that in a minute. I'll just take kind of a philosophically or from a big picture perspective. When we are pulling those levers on price promotion and margin optimization, trying to figure out where the sweet spot is, I would say, we tend to go in cycles sometimes. The needle will move from one side of the spectrum to the other a little bit. And I would say in the second quarter, in particular, we probably were a little bit more aggressive on price than normal, and so you saw the negative 1% price for the tools segment. That is not something that I necessarily see as a sustainable approach, but it was more of a – a bit of experimentation, especially since our regular promotional activity in the second quarter was a little bit lower. So, we had a fantastic margin performance in the tools business, 18.1%. Somebody was commenting early, before the call, that wow, it's down 70 basis points. Well, it's down 70 basis points versus our highest margin ever in the tools business. So, I wouldn’t get too concerned about it. We have the flexibility to do some experimentation we did. I think you'll see a little bit more of a shift as we get into the second half, particularly the third quarter where we have more traditional type promotions as opposed to price-related promotions. And all of that price activity, I would say, is driven more by us in the driver seat as opposed to responding to anything in the marketplace. Don?

Yeah, I wouldn’t dramatically add anything to what Jim just said about price. I think that was right on the mark. But I will reinforce that this is probably – if not the second or third highest profitability quarter tools has ever had – I think it’s the second highest they have experienced after last year's second quarter of 18.8. And so – and we just have to keep that in mind and recognize that we're also experiencing some commodity inflation pressure as well, and yet we're still able to achieve that level of profitability. [Indiscernible] and that we don't turn it into something any more significant than what it is, which is relatively insignificant. I do want to make a comment – I didn’t answer Nigel's second question about the profitability related to the shift of cannibalization in FlexVolt. And really, it's not much of a significant impact. It's a little bit of a negative initially here. As we have said before, the FlexVolt margins are a little bit lower than line average throughout this year. We expect as we go into next year for that dynamic to change as we've increased the volume and we also will likely have lower promotional activity as well. But the impact overall is relatively minor and you can see that in the overall operating profit rate of 18%.

This is Jim. I'd also like to say that – congratulations to the operations team in Tools & Storage. They’ve done a fabulous job with productivity. We had a series of years where we had design-to-value initiative going, which is now pretty mature. But at this point we're starting to get in pretty significantly into industry 4.0. And that basically involves creating smart factories and then embellishing them with robotics and 3D printing and these types of things. We're far from the robotics and 3D printing phase of it, but we're definitely making a lot of progress in making the factories more data-driven, more real-time in their execution. And what we're seeing is that we're getting above average, above historical average productivity out of this and we expect to continue that as we go forward. So, that's really helping boost the margins as well.

Thank you. Our next question comes from Rich Kwas with Wells Fargo Securities. You may begin.

Hi. Good morning, everyone.

Good morning.

How are you doing? A couple of quick ones for me. On Security, you talked about investments relative to the beginning of the year and the underlying margin. Was there any change in the underlying performance? I know most of the decrease is coming from elimination of mechanical locks, but if you provide some more color on what's changed since the beginning of the year in terms of incremental investments for future growth versus underlying performance organically? And then the other one real quick is, as you look at the second half of the year, you have a big industrial electronics customer that is coming out with a new product. How should we think about impact to the top line as we think exiting 2017 and into 2018? I know that business has been under pressure for some period of time. Thanks.

Yes. As it relates to Security initially, no major changes to our thought process around investments. As we said at the beginning of the year, we're investing a little bit of funds within our Security business to develop a more consistent organic growth profile over the long-term. And we think we are starting to feel a bit of the benefits of that as we saw a quarter with 2% organic growth here within the second quarter, but there's more work to be done in that regard. So, no major shift. I would say there was certainly a little bit of mix pressure this quarter that maybe had a tenths or two-tenths of pressure on the profitability in the segment as we saw a little bit higher mix of installation revenue in the United States and then the country mix over in Europe also was a little bit of a negative, but nothing major. So, I wouldn't say there was anything really underneath that was kind of causing a major shift that's something that’s permanent or ongoing. It's just more of a unique second-quarter type of situation. As it relates to Industrial and electronics, that business for us has gotten down to a relatively small number here in 2017. So, in the second quarter, it was about $6 million of revenue. It's a very small component of that business at this stage for that particular customer. We don’t expect to participate in a significant way in the launches in the back half. We have a minor role with that customer on an ongoing basis and we actually like that position, given the volatility and the profitability of the business.

Thank you. Our next question comes Michael Rehaut with J.P. Morgan. You may begin.

Thanks. Good morning, everyone.

Good morning.

Just a quick clarification and then my main question. The clarification is just on the Tools & Storage. I was just curious. On the growth investment in basis point impact on margins, just trying to get a little better sense of kind of like the underlying core margin, let's say, in that business as growth investments eventually will moderate as, I guess, you get other – FlexVolt and your other acquisitions more fully running. And then, just on the main question, though, on the – little bit more detail, hopefully, on the change in – what's driving the change in sales growth guidance. You mentioned Tools & Storage and Industrial a little bit better than the last time. Sorry if I missed it, but just a little bit more of where that's coming from in both segments?

Sure. So, I mean, I think on the growth investment side for Tools, that's not a simple number to quantify because there's a lot of different investments across the tools business that are made to stimulate growth in the core business, to stimulate FlexVolt. So, it's difficult to really say how much new growth investments are. And what I would say is that there continues to be areas that we want to pursue, to make investments for future growth and to experience the type of growth that we've had in this business at high-single-digits – anywhere from mid to high-single-digit organic growth on a consistent basis, we have to be making some investments along the way to ensure that that type of trend continues, at least in the midterm. And that's really what you're seeing in the business. Now, that being said, to all the points we made earlier, the profitability of the business continues to improve. And so, we would expect that when we look at the year-over-year performance of tools here in 2017 versus 2016, we will probably see 40 to 50 basis points of improvement in the margin rate year-over-year, while we're making investments, while we're making other decisions because of some of the things Jim mentioned around productivity, because of other cost management in different areas outside of growth investments, all those different things allow us to manage the business in a certain way and get to a certain result.

That’s a really important point, Don, because that's philosophically what we're trying to do, is that we're trying to achieve top quartile organic growth and fueling that with investments and at the same time driving margin expansion. And that's not easy to do, as Don points out, but that is really philosophically what we're trying to do.

Yes. The other question was related to change in the organic growth guidance assumption. Yes, we have tweaked our – as I mentioned in my comments in the call, we have tweaked our assumption for Tools & Storage up a little bit versus what we said in April. And the same thing would be for Industrial. Now, Industrial's reason is more because we saw a stronger performance in the second quarter than we were thinking in April. Tools is more of a continued trend of modest outperformance in their organic growth versus expectations and then slightly – certainly, as we get to July every year for our tools business, we get a really nice view of the back half of promotional activities, the beginning of the holiday season, and so that gives us something that we can get a better sense of what we think organic growth will look like. So, based on those various factors is why we tweak those numbers up.

Thank you. Our next question comes from Tim Wojs with Baird. You may begin.

Hey, guys. Good morning. Nice job.

Good morning. Thank you.

I guess my question is really on Craftsman. I was just wondering, Jim, if you could talk a little bit about maybe the scheduled launch in the middle 2018, a little bit of color on maybe which product, any sort of dialogue you're having with customers. And then maybe more broadly, any change to how you guys or your customers are thinking about e-commerce at this point?

There's a lot of really good things going on relative to Craftsman. I don't want to get into too much detail because it is a competitive situation, but I will tell you that we are working on designing a complete comprehensive product line that spans all categories that it will be a high-quality product line that is high quality, high-value for the customer and will take some of the best attributes of our high-value products from across all our brands and incorporate them into the designs. The channel discussions, the customer discussions are going very well. The interest level is very high. We haven't really changed too much in terms of our strategy. There will be some decisions made in terms of how we expect to go to market from a channel perspective in the late third quarter, early fourth quarter. And then it will be all systems full speed ahead for a mid-2018 launch.

Thank you. Our next question comes from Joe Ritchie with Goldman Sachs. You may begin.

Hey, good morning, guys.

Good morning.

So, maybe just kind of touching on the FX and commodity headwinds of $100 million to $105 million that you forecasted for the year, maybe if you could talk a little bit about whether the pressure you saw in 2Q was more or less what you anticipated. And then, I'm just a little surprised that we are keeping that at the same number just given that FX has probably moved more positively for you as the years progress. So, any comment on that would be helpful.

Sure. I will take that. Yes, so we started the year with an estimate of around $100 million in total for those two items as a headwind. And at that time, it was about 50-50. So, 50% for FX and 50% for commodity inflation. Back in April, it had shifted more to 60%/40%, 60% being commodity and 40% being the FX. In the second quarter, that shift continued, where now we think based on current rates, we're probably around $25 million of that $100 million is currency. And the remaining $75 million is commodity inflation. And so, we've seen a continued trend of commodity inflation creeping up through the first six months of the year. We feel like, at this stage, for the remainder of the year, we have our arms around that with various contractual situations with key suppliers that we think we can manage that through the remainder of the year within a relatively small number. So, we don't expect that trend to continue. And if FX continues to go in the direction it has been, there might be a potential for that $100 million to be a little bit smaller by the end of the year, but we'll see how things progress at this stage. So, that gives you a little bit of the evolution and the history and where we are today.

Thank you. Our next question comes from Robert Barry with Susquehanna. You may begin.

Yeah. Hey, guys. Good morning.

Good morning.

Just I guess a couple of questions on tools volume and to reference your comment earlier on pricing experiments. How much volume do you think you picked up in tools this quarter with the price picking down one? And then, just a follow-up on the FlexVolt comments, it seems like the broader tools business is doing better and the momentum there is better. It seems like the outlook for FlexVolt should be kind of sharing in that, to the extent that end markets helping there. Any comments there on just how you're thinking about that outlook for FlexVolt versus the broader tools market?

We haven’t changed our outlook for FlexVolt pretty much all year. We've been consistent with that, $300 million minus the $100 million for cannibalization. And feel good about that. We have a whole family of new SKUs coming out here in the next couple of months that’s going to support continued growth in FlexVolt against comps that begin to get tough as we start to get into the September, October, November, December time frame. So – and Don, I think, hit the cannibalization subject pretty hard earlier. So, I think FlexVolt is a good story. It's going to be really good. And it's going to be supportive of the $300 million number growth. And we'll see what happens when the new SKUs come out. If they're really successful, that will be – it will be great. And then we have the fact that we have no answer yet in the marketplace to FlexVolt and we're almost a year in now. So, this is about building an install base. A battery system is about an install base. And getting that install base built means that it creates the foundation for future growth and future expansion. And if you recall, the whole concept of FlexVolt is eliminate cords from the job site. And the more speeders [ph] we can come out with over time where people use that battery system will be a definite competitive advantage here as we go forward. So, we're very excited about FlexVolt. We're thankful that the innovation was protected well enough, so that it could not be leapfrogged in short order. And I think it would be foolish to think that, sooner or later, a competitor or competitors won't come out with an answer of some sort, but the answer we've seen so far, which is 9…

Thank you. Our next question comes from Chris Belfiore with UBS. You may begin.

Good morning, guys. Yeah, I just kind of have a follow-up to that kind of comment there and question. I mean, in terms of just the back half for Tools & Storage, I mean, a little bit better than mid-single digits, just trying to figure out where – it seems like it needs to kind of slow down from a volume standpoint. But, like, you just said there's promotional things going on in the third quarter. So, kind of how like price and like volume kind of pare out in the second half, any color on that?

Yes. So, certainly, the comps are getting tougher as we get into the back half of the year. So, we've got to keep that in mind. But based on our current outlook, you're probably looking at a second half that’s going to be around 6% organic growth for Tools & Storage. And so, it's kind of right in the middle of that – Jim just described, the sweet spot of the business currently today. Runs very well in that range of 5% to 7%. It might have a slight slam to 7%. We'll see how the year ends up, but it's kind of in that range of 6%, maybe up to 7%.

Thank you. Our next question comes from Josh Pokrzywinski with Wolfe Research. You may begin.

Hi. Good morning, guys.

Good morning.

Yeah. Not to beat FlexVolt to death, but, I guess, could you just, Jim, run us through some of the thoughts on cannibalization, just given that the dollar mix or I guess the price point is so much higher for FlexVolt versus corded. And I think even on the battery line, much higher as well. And maybe try to weave some of the commentary by inventory turns in that. I think a lot of what you saw last year and even in the early part of this year has been mostly channel fill versus turns. So, just how are those turning through the market and I guess, like I said before, how is that factoring into the price mix on FlexVolt relative to that cannibalization number?

First of all, let there be no confusion that the sell-through on FlexVolt is excellent. And really, it's not about growing inventory in the channel. The early first month or two obviously was sell-in as a result of a startup of an initiative. But the sell-through has been excellent and continues to be very strong. So, let me just put that one to bed. I think the one point that you really – you hit it on the head with FlexVolt is this is about share of wallet when it comes to cannibalization. And you have two wallets. You have the end users' wallet and you have the channel wallet. And that’s what makes it so difficult to really predict what the cannibalization will be because, at the end, there's only a finite demand for power tools and there are competitive power tools out there and then there are power tools and there's FlexVolt. And we can't really analyze at this stage and may never be able to fully analyze what the impact is on cannibalization because of those various share of wallet items. And I think that you hit on the head was FlexVolt is more expensive. So, to the extent that people are buying more units of FlexVolt, they are more challenged to buy 20 volt or 18 volt type products in the marketplace. So, I don't think there's any clear or easy answers to the question, but what we're to monitor this is we're actually looking at point-of-sale in the non-FlexVolt areas, corded and cordless. And we haven't seen any dramatic decreases at this point in time, but I think we do see some decreases at the margin, and that’s all we can really quantify. So, we'll keep an eye on it. We'll report back as we learn more and more, we do more analysis over time. But it's going to take several quarters before we can really pin down exactly what the impact is.

Thank you. Our next question comes from Ken Zener with KeyBanc. You may begin.

Good morning, gentlemen.

Hey, Ken.

Taking that same line of questioning and adjusting a little bit, given your comments and that's a finite universe in terms of the SKUs, redefining the market is something Stanley has done very well and DᴇWALT in its history did very well. And ever since your analyst day, I’ve been just constantly referencing back to Jeff Ansell's discussion around what FlexVolt is and where can it go. The idea that you're targeting small gas engines is something that is resonating with me. Not only because that’s a new market for you, but also because of the savings you generated through the Black & Decker acquisition. Your margins today are nearly double a lot of your peers. So, are you too busy with Newell, with Craftsman to consider that proposition? What are your limits, I guess, because that's the real story behind Stanley is going into new categories, leveraging your operating platform versus others and acquiring a brand that’s already established?

First of all, I would say that Craftsman brought many positive elements to the table. One of them is that it's complementary to exactly what you're talking about because prior to Craftsman we did not have a large gas engine or small gas engine lawn equipment power initiative. We did have the string trimmers and those types of things, but they were electric. So, this gets us into gas. And we're learning a lot about lawn and garden, as we speak, and we are experimenting with the application of DC brushless electric motor technology to lawn equipment. And we do think that there is a big future. But there are some technological breakthroughs that will have to occur relative to the cost of doing that. And so, there's a lot of work going on there. And the answer to the question, are we too busy with Craftsman? Actually, this is part of our busyness with Craftsman.

Thank you. Our next question comes from Scott Redner with Bellman & Associates [ph]. You may begin.

Hi, good morning.

Good morning.

I had two quick questions on the Tools & Storage segment. First, on the Newell side, I think you guys alluded to a retail load-in. And I just wanted to clarify that the prior guidance had no revenue synergies embedded in it. And then secondarily, your largest domestic customers, at least their stock prices have been impacted by some of the e-commerce plays that have unfolded in the home-improvement category. Given that you guys sell to e-commerce as well as these large retailers, I was just curious to get your view on – if you think the pie in power tools as well as overall home-improvement is big enough for an e-commerce entrant as well as the legacy home centers to survive as you look out?

I’ll take part two. Don can figure out a little bit more about part one and probably ask one clarification on that. But let me cover part two. So, we as the largest tool company in the world, and as Don mentioned earlier, have taken a pretty aggressive stance in terms of making sure that we participate in the e-commerce opportunity and I’ll call it a transformation. And, of course, e-commerce has its limitations. However, we would be foolish to think that it's not going to be a substantial part of the market in the years to come. It already is a substantial part of the market. And as was mentioned earlier, we, back in 2010, elected to enter the e-commerce market in the US and we did it not only with traditional e-commerce players or player, but also with our traditional customers, especially the home centers. And the traditional home centers are forces to be contended with as it relates to e-commerce. My guess – I would never ever comment upon the health or survival of our large customers, but I would say that both home centers embrace e-commerce. And I think they have certain advantages and certain advantages relative to the pure e-commerce players. And therefore, without getting too much into those, but you think about omni-channel and the advantages that brings, and you look at the recent purchase of Whole Foods, and you scratch your head and say why did that happen, I think if you start to envision how omni-channel could play an important role in e-commerce. You could see an unfolding scenario that says there can be successful pure players and successful omni-channel players. And maybe it all gravitates towards omni-channel at some point. So, I think there probably are going to be lots of changes as time goes on. We are really well-positioned, largest e-commerce player in the tool industry by an order of magnitude, probably as much as an order of magnitude. And have developed skills and capabilities that we share readily with all our customers that are interested and now, as Don mentioned earlier, also internationally into the developing countries in Europe and the other developed countries in the world and the developing countries. And I think in the developing countries, what's interesting about e-commerce is that it will enable us in certain areas, such as China, where we don't have number one market share to take a fresh look at how does one go to market in that type of – with that type of an opportunity to leapfrog maybe traditional distribution channels. So, very, very interesting space. We've done a lot of analysis and review of e-commerce in the last year or so. We're very comfortable with our strategy there. And we look forward to that being a major growth driver for us as we go forward across our customer base.

Yeah. So, the first question you had I think was around – Jim made a comment in his opening remarks about Newell and moving certain inventory from one DC to another, and that was really just part of the integration plan. There was no load into a customer. You might have misinterpreted those comments. It was really moving from one of our DCs to another to improve the service fill rate levels because when we initially acquired Newell, fill rates were much lower than what we would want them to be. And so, we've been aggressively – the Tools & Storage team has been aggressively working on this since the first day of acquisition and has made significant progress in that regard. But there hasn’t been any load in or anything into our customers related to new products. It's simply part of the integration, something that we had on the plan before the closing occurred. If that doesn't answer your question, feel free to call Dennis and Greg and they can clarify anything else you had.

Our next question comes from Michael Wood with Nomura Instinet. You may begin.

Hi. Thanks for taking my question. I’ll just shift gears to Security. Now that you’ve made your strategic decision there for the segment, just curious if there is opportunity to tweak any country by country exposure or are you with that portfolio now? And also, if you can just give some comment on the 2% of the acquired recurring business, if that was opportunistic or we should expect that to continue going forward?

Yes. So, I'll take that one initially and Jim can add new color on the first part of your question. Right now, we actually feel pretty good about the country makeup of the Security business. We don't see any countries that are major concerns for growth and profitability. We do watch that on an ongoing basis and evaluate it every year as part of our strategic update planning process. There are a few small countries in Europe that over time we have to decide, can we build a level of substance in infrastructure within those country that make them a player, whether either number one or number two in the marketplace, because we have a few smaller ones right now that are not in that position. If that didn’t play out the way we wanted to, then that could be something we evaluate in the future. The second part of your question, yeah, we occasionally do these opportunistic RMR acquisitions in our security – electronic security business where we see them as nice additions to the portfolio, that integrate right into our infrastructure, and we will continue to look for those at the right price and the right financial returns.

Thank you. Our next question comes from David MacGregor with Longbow Research. You may begin.

Yeah, thanks for taking the question and congrats on the good quarter.

Thank you.

Just to pick up on the European – on the Security business, I was wondering if you can just talk about the European security business in particular. And you provided some outlook through 2017. But looking further forward in 2018, can you just talk about your growth prospects and has perhaps something changed competitively? And then, if I could just add one quick one on – you called out Mac Tools as a source of strength. I know you added some storage product initially there. Was that what was driving the growth or you’ve seen something else that’s driving Mac's strength?

Yeah. On Mac Tools, this has been an ongoing, multi-year, steady execution, improvement. We have a difficult relative market share position. So, it makes it that much more challenging. But we've added trucks. Our sales per truck, every year there, they're are improving dramatically. And it's just a kind of a more slugfest over time. A steady slugfest. And even with all that, we're getting kind of mid-single digit growth. We had a pretty good quarter this quarter, a little better than usual. But it's basically three yards and a cloud of dust in Mac Tools. That’s the way that businesses is for us. We love it, but it's not going to be an 80-yard wide receiver touchdown in one quarter. So – and with that, I’ll have to – Don, you can tackle the first part.

Yeah. So, Security Europe, specifically around organic growth, we had said for Security in general, and it applies to Europe, is that we believe it's a business that right now based on its current makeup, it can grow organically 2% to 3% on a consistent basis. And Europe had demonstrated that type of trend up until this year, where they’ve seen a little bit of pressure in France, which is one of their larger markets that we think is just more market related and one time in history in the sense of – it's just really impacting this year. But we still think that’s the right growth prospects for the business both in Europe and globally. But more importantly, as you’ve heard at our investor day back in May, we have to continue to work on the next evolution of Security, which is getting into other areas that are very unique solutions that specialize touch to a customer at higher value and ultimately add to more positive mix to this business over the journey of the next three to five years plus. And so, we need to do both of those things. But I think that’s the type of thing that maybe could move the business beyond 2% to 3% organic growth. But right now, that roadmap is not completely defined, but certainly well underway.

Thank you. This concludes the Q&A session. I would now like to turn the conference back over to Dennis Lange for closing remarks.

Shannon, thanks. We'd like to thank everyone for calling in this morning and for your participation on the call. Obviously, please contact me if you have any further questions. Thank you. End of Q&A: Ladies and gentlemen, this concludes today's conference. Thanks for your participation. Have a wonderful day.