Welcome to the Third Quarter 2018 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 are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to the Vice President of Investor Relations, Dennis Lange. Dennis Lange, you may begin. Dennis Lange - Stanley Black & Decker, Inc.: Thank you, Shannon. Good morning, everyone, and thanks for joining us for Stanley Black & Decker's third quarter 2018 conference call. On the call, in addition to myself, is Jim Loree, President and CEO; Don Allan, Executive Vice President and CFO; and Jeff Ansell, Executive Vice President and President of Global Tools & Storage. Our earnings release, which was issued earlier this morning, and supplemental presentation, which we will refer to during the call, are available on the IR section of our website. A replay of this morning's call will also be available beginning at 11:30 AM today. The replay number and the access code are in our press release. This morning, Jim, Don and Jeff will review our third quarter 2018 results and other various 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 risks 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…

Thank you. Our first question comes from Jeffrey Sprague with Vertical Research. Your line is open.

Thank you. Good morning. James M. Loree - Stanley Black & Decker, Inc.: Hey, Jeff. Donald Allan, Jr. - Stanley Black & Decker, Inc.: Good morning.

I apologize. It might be a little bit of a multi-part question. But I just wanted to confirm what the headwind is for 2019. And it does sound like the restructuring action is just meant to counter the tariff-related headwinds, and therefore, you're relying on price and other methods to cover the balance. And I was wondering if you could elaborate a little bit just on the restructuring. We view you as a very lean, well run, tightly managed company. $250 million is a big number. Maybe you could give us a little bit of color where that comes from, how you get it? Donald Allan, Jr. - Stanley Black & Decker, Inc.: Sure. I'll start with the first part of your question. So, yes, for 2019, we believe the headwinds of the three categories will be very similar to the 2018 level of $370 million at this stage. So about $200 million of that is related to tariffs, and then the remainder is split between commodity inflation and currency. So you can look at that and say $370 million. We're taking price actions on virtually all of those particular items. We've either done that this year or we will do it early next year related to List 3. In addition to that, we're also doing $250 million of cost takeout actions to be responsive to potentially more headwinds, potentially slower markets, and potentially managing our price dynamics, as we put all this price into the market next year to ensure we can have earnings growth next year. So we're trying to have different levers that we can pull associated with these headwinds, which allows us to grow our earnings, as I said, high single-digits for next year versus 2018. On the cost reduction side, I mean, we will go through a process that we've done many times before as a company. We haven't done one of these in a while. However, the discipline in structure on the process is very much focused on, what are the types of costs that we can take out that would not impact growth initiatives within the short-term and the midterm? How do we ensure that we don't slow momentum in some of these great growth catalysts that both Jeff and Jim talked about this morning? And so it will be very much targeted to activities that are removed from the customer in that regard, removed from the innovation categories, et cetera, that really do impact growth in the timeframe of the next one to three years.

Thank you. Our next question comes from Julian Mitchell with Barclays. Your line is open.

Thank you. Good morning. Donald Allan, Jr. - Stanley Black & Decker, Inc.: Hi Julian.

Hey, just wondered if you could give a bit more color on the top line performance within U.S. Tools & Storage. Your U.S. retail sales slowed quite a lot in Q3. And that was before, I guess, for the price increases that will come. So maybe talk a little bit about the cadence of the Tools & Storage business demand in the U.S. And, also, what type of price increases you think you can get in the future without driving volume demand disruption as the demand seems to be softening kind of even before another round of price increases? Donald Allan, Jr. - Stanley Black & Decker, Inc.: Yeah, so we – in the U.S. market in particular, we, as I mentioned in my comments, the transition of Craftsman as far as getting Craftsman into the stores, in Lowe's stores, is going very, very well. But as we look at the legacy brands that are being transitioned out, that impact has been a little bit more negative than we originally forecasted. So, therefore, that was one of the larger pressure points that we saw within the U.S. market. Our price expectation was a little bit higher than what actually occurred as well within the U.S. market. And so that was probably the second category. But the first one was probably the larger impact that really drove that. We will continue to put price into the market related to the tariffs that are coming in January for List 3. And we will also continue to monitor the elasticity of how the volume responds to those price increases. And we will manage through that in a way that is balanced along the lines that I touched on earlier where we have a dual objective. When we have market growth, we want to…

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

Hi, good morning. Just a couple for me. Donald Allan, Jr. - Stanley Black & Decker, Inc.: Hi, Rich, good morning.

How are you doing? So, on $1 billion dollars, first of all, is that net of cannibalization. It sounds like there was some cannibalization here in Q4 or Q3 I should say, and so what would be that near-term in terms of the impact, how we should be thinking about that, and just clarity on that $1 billion. And then secondly, what is the price assumption now for the year for 2018? It was $190 million. I just wanted to get an update there. Thank you. Donald Allan, Jr. - Stanley Black & Decker, Inc.: Yeah, so the $1 billion clearly includes some cannibalization. However, if you think about what Jeff and Jim talked about related to Home Depot, we would like to think that as we rolled that out in Home Depot for STANLEY and STANLEY FATMAX that we can have a mitigating effect on some of the cannibalization that we're experiencing this year and into part of next year or a large portion of next year. So, if you look out over the four-year time horizon that the $1 billion dollars will evolve, our hope is, is that the cannibalization component of that is not very significant. But we'll see how that plays out over time, but we'll continue to see some cannibalization impact as we exit this year and we go into next year. But we do believe the cannibalization impact will be a little less in the fourth quarter and begin to mitigate itself a little bit more throughout 2019. James M. Loree - Stanley Black & Decker, Inc.: That's also going to be affected by the Sears financial situation. So that business has to go somewhere. And we only had a very small amount of business with Sears. I think it was running around $50 million annually. So we feel like that is a very, very positive development from a revenue point of view for us. Donald Allan, Jr. - Stanley Black & Decker, Inc.: As far as price this year to your second question, it will be lower than the previous communicated $190 million, probably by about $30 million to $40 million. That's kind of a rough magnitude of where it will be. A large chunk of that happened in Q3, and a little bit more will happen in Q4? James M. Loree - Stanley Black & Decker, Inc.: We will also say that the peak of the cannibalization really occurred in Q3. I mean, that's when we started most of this process. So the cannibalization rate will be less in Q4 and it will dissipate as we roll through 2019.

Thank you. Our next question comes from Steven Winoker with UBS. Your line is open.

Thanks. Good morning. James M. Loree - Stanley Black & Decker, Inc.: Good morning.

I also have a multi-part question here. So the first one is, that $125 million expense is what I see for the $250 million of savings, is that correct or what else have you got going in there to get to $250 million? And then secondly, I just want to come back to this pricing point that was just raised. A little more feeling for why you were $30 million to $40 million short, how that affects your timing and thinking of what will be really much more concern than I've got around 2019 versus 2018 as opposed to sort of the rest of this year. And I know you mentioned the demand part, but that – a bit better sense for how you were kind of digging in and really getting a higher comfort level that you can hold it given maybe your prior experiences with soft demand? James M. Loree - Stanley Black & Decker, Inc.: So part, the one answer is yes. $125 million and $250 million are – that's all of it. The second thing is, it's early days. And for anyone to speculate that they understand what the elasticity of demand is for all these SKUs in a timeframe when there is really no precedent for these types of price increases in the United States. On the other hand, we have a fair amount of experience in the emerging markets with pretty dramatic price increases. When the currencies weaken, we frequently find ourselves raising prices to offset those currency impacts, and you see continued solid growth in all those markets. We have double-digit growth in the emerging markets. Sometimes you end up with a shift from a volume-driven organic growth to more price-driven organic growth. But in the end, you get the organic growth and you protect the margins. And that's kind of our approach. So we can't tell you how much price we're going to get next year right now. One of the reasons we did, I think Don mentioned this, one of the reasons we did the cost reduction is because we want to have those levers. We want to be able to have the flexibility to manage our price volume and still drive earnings growth and that will give us the opportunity to do that in 2019.

Thank you. Our next question comes from Josh Pokrzywinski with Morgan Stanley. Your line is open. Joshua Charles Pokrzywinski - Morgan Stanley & Co. LLC: Hi, good morning, guys. James M. Loree - Stanley Black & Decker, Inc.: Josh. Donald Allan, Jr. - Stanley Black & Decker, Inc.: Good morning. Joshua Charles Pokrzywinski - Morgan Stanley & Co. LLC: Just wanted to dig in a little bit more on this STANLEY and FATMAX exclusivity announcement. You mentioned some disruption in the channel, call it cannibalization around some product line transitions. Could we see something similar with this as those brands get consolidated into Home Depot? And could you maybe size what that looks like? I think we can all kind of look at what Craftsman has been historically in the market through Sears, but I think this is another middle price point brand that seems like kind of a fair exchange offering for other channels. What's the size of that in the market today that will now be housed a little bit more exclusively inside Home Depot?

Well, I'll give as much clarity as I can. But obviously this doesn't happen until 2019, so to speculate at all, that would be impossible. But to answer the question kind of thoroughly would be, the acquisition of the Craftsman brand we felt like gave us a great opportunity to convert share that had eluded us and every other tool company for generations. And I think that has proven to be very accurate, which is why we've now increased our number to $1 billion by year four rather than year ten. Concurrent with that, what we hope to do, but hadn't committed to till now I guess, is that with that, the advent of the Craftsman brand in our portfolio, it allowed us and will allow us to unlock other marquee brands in our stable of world-class brands to go exploit opportunities for share gain to customers that don't support Craftsman. So now you have a growth vehicle for Craftsman-based customers to go after share of Craftsman that has existed in Sears for many, many years, and opportunities to use the other brands to go after share within those locations against competition. And the combination of those two things is giving us an opportunity to do that domestically, and then use brands like Irwin/Lenox, et cetera, to do the same thing globally. So it's an outstanding opportunity. I guess, to comment back on the question about The Home Depot, I would say this, we've experienced accelerated growth on the Power Tools side with DEWALT corded products, DEWALT power tool accessories, DEWALT cordless, DEWALT outdoor and DEWALT FlexVolt. This advent of STANLEY and STANLEY FATMAX gives us the opportunity to replicate that type of incremental growth for us and for them, and on the Hand Tools & Storage side of the business. And it obviously represents share gain for them and for us or we wouldn't have taken the time to announce it today.

Thank you. Our next question comes from Michael Rehaut with JPMorgan. Your line is open.

Thanks. Good morning, everyone. James M. Loree - Stanley Black & Decker, Inc.: Hey, Mike. Donald Allan, Jr. - Stanley Black & Decker, Inc.: Good morning.

First question, I just wanted to circle back and just try and – and I apologize if you kind of hit on elements of this in previous questions. But just trying to think about 2019 and the puts and takes there, and if I'm missing anything or there are areas to elaborate on, appreciate it. So you have, on the one hand, the $370 million additional headwind from the three buckets of commodity, currency and tariff. On the flip side, you're looking at the $250 million of cost savings. And I was just trying to get a sense of how you're thinking about the other positive drivers across volume growth, or sales growth, pricing and productivity. Because certainly, within this year, you're lowering the growth by 1%, and maybe that's a little bit due to more cannibalization. But I would suspect, particularly on the growth side, that you're still looking at some type of mid-single digit rate. And I was just curious if you could kind of help us frame thoughts around benefits from pricing as well as productivity? Donald Allan, Jr. - Stanley Black & Decker, Inc.: Well, let me just clarify one thing. We're not providing guidance for 2019, but we are providing some insight and direction as to what we see based on the actions that we're taking, as well as the headwinds that we have. So we wanted people to understand that we believe we have a way to grow our earnings in a meaningful way in 2019. We have headwinds to deal with, as we've talked about of $370 million. We will have price actions and carryover related to that. We'll have new price actions that we will put into the market, related to List 3 in January. Obviously, those will have a mitigating effect…

Thank you. Our next question comes from Nigel Coe with Wolfe Research. Your line is open.

Thanks. Good morning, guys. James M. Loree - Stanley Black & Decker, Inc.: Hey, Nigel. Donald Allan, Jr. - Stanley Black & Decker, Inc.: Hey, Nigel.

There aren't too many companies talking about 2019, so really appreciate some of the moving pieces for next year. It's very helpful, so thanks for that. James M. Loree - Stanley Black & Decker, Inc.: Yep.

I wanted to go back to Craftsman. So that's obviously a big influence for next year. And I'm curious if you just make – bring us back to where your capacity is right now, where you see that moving in 2019, and if Sears does go into Chapter 7 liquidation, what can you do to accelerate that production ramp? Donald Allan, Jr. - Stanley Black & Decker, Inc.: Very good question. We've worked really hard since March of 2017 to bring this 1,200 SKU product portfolio to life. And I'm very pleased at the initial rollout in the first 90 days of the rollout. Shipments are up. POS is up, representing share gain for us and our partners. But the other key component is our service levels on that product right now, almost 100%. And so we've capacitized ourselves. Before we would commit to $1 billion by 2021, we built capacity plans to support it. So we feel very good about our capability of supplying that accelerated demand through our existing 50, 60 manufacturing plant structure. Again, we make almost 90% of what we sell, so we have great control over those things, and we feel very confident we can support the accelerated demand created by Craftsman in whatever form it might be.

Thank you. Our next question comes from Tim Wojs with Baird. Your line is open. Timothy Ronald Wojs - Robert W. Baird & Co., Inc.: Hey, guys, good morning. James M. Loree - Stanley Black & Decker, Inc.: Good morning. Timothy Ronald Wojs - Robert W. Baird & Co., Inc.: I guess just – sorry to go back to price again, but I guess, in your conversations with the home centers just on tariffs, are they kind of thinking of tariffs as kind of normal inflation where you need to kind of show them the inflation and then you kind of get prices to lag? Or I mean, since these tariffs are kind of clearly out there, are you able to maybe line up price increases more in line with those tariff increases? Just trying to get a little bit more color on just the confidence on pricing in Q1 and then how that might impact the cadence of price costs in the first half of next year?. James M. Loree - Stanley Black & Decker, Inc.: Yeah, I don't think anybody except the home centers can get in the minds of the home centers. But I will say that the home centers appear, and frankly, all the customers appear to be in a position where they understand that their supply base cannot absorb onetime increases in the cost of this magnitude, 25%. And they understand that. They understand that they're not going to do it. And so in the end, this is all going to go to the consumer whether it's Tools or whether it's consumer products or whatever in other companies, other industries. And that I think is the way this is all going to play out and is playing out.

Thank you. Our next question comes from Dennis McGill with Zelman. Your line is open.

Hi, good morning and thank you. Maybe another one for Jeff on the home centers. I guess for the HD exclusive, can you maybe just talk about what brought about that opportunity to have the exclusive conversation? And then when you look at the brands or the products that fall underneath, what will be exclusive, can you size the relative footprint today at Home Depot versus Lowe's? Jeffery D. Ansell - Stanley Black & Decker, Inc.: I could do the first part of the question. I don't think I can provide the information on the second part of the question just is – it's confidential information. But I would say this that when we begin to build the architecture around the acquisition of Craftsman, Irwin and Lenox as well, we looked at all those brands and where they participated. And we were proactive in trying to manage the cannibalization that would occur across those brands if you allowed them all to reside in the same place. And we're proactive in going across our retail landscape with partners to use those brands to accelerate growth and share gain in various places. You've seen like four or five really good examples of that to this point with Craftsman and now STANLEY, STANLEY FATMAX. We also love all of our customers. So we wanted to have an opportunity to grow with each and every one of them. Growth at one at the expense of the other is a short-term solution and not ultimately very successful. So this took a lot of additional work. But it has taken us – it will take us to a place where share gain in the future is incremental to any share gain in the past. So we feel really good about that. In terms of the size, probably the only thing I can say is that we have been on accelerated growth trajectory with the Home Depot over the last decade across our portfolio. This will allow us to do in Hand Tools & Storage what has been really clearly done across Power Tools and Power Tool Accessories. So it will give us a complete growth platform with a really important customer .

Thank you. Our next question comes from Joe Ritchie with Goldman Sachs. Your line is open. Joe Ritchie - Goldman Sachs & Co. LLC: Thanks. Good morning, guys. James M. Loree - Stanley Black & Decker, Inc.: Good morning. Joe Ritchie - Goldman Sachs & Co. LLC: And I do appreciate all the color you've given us today. Maybe just a little bit more insight on the restructuring plan, obviously, the payback at 2X looks pretty good. So maybe can you give us a little bit more color around like the cadence of the benefits coming through for next year? And then also, if we do get level 4 tariffs, like is there – how would you go about tackling the potential impact from level 4? Donald Allan, Jr. - Stanley Black & Decker, Inc.: So, yeah, I'll give you a little bit of color. As far as the restructuring, as we said in our press release, we will complete the vast majority of the actions associated with it by the end of 2018. So, therefore, we would expect a pretty even cadence across the four quarters of 2019. And so I think you can pretty much move that across the quarter. The bulk of the charge, obviously, will take place in the fourth quarter of 2018. The second question was around what? What was it on?

The List 4 tariffs. Donald Allan, Jr. - Stanley Black & Decker, Inc.: List 4 tariffs. So List 4 tariffs, we'll take the approach that I described when I went through that on the slide. That the first step of actions will be price increases in the marketplace. The second step will be looking at, is there an exclusion process that we can go through with the U.S. government because there is some disadvantage that we have in the marketplace as a result of the tariff. And then the third will be looking at what we can do to our supply chain to change aspects of the supply chain as to where things are manufactured, whether it's bringing things to the U.S., to the – along our strategy of make where we sell, or is it moving into another country because it makes more sense to do that, both from a market perspective and a financial perspective. So those will be like the three levels of steps that we would go through. Very similar to what we're going through with List 3, and what we've gone through with the previous two Lists related to the tariffs. James M. Loree - Stanley Black & Decker, Inc.: Not all tariffs are horrible at this point. The tariff impact to some categories, like boxes, metal boxes, they have actually been positive for us. But wave 4 would also accelerate our advantage based on our domestic manufacturing footprint.

Thank you. And our next question comes from Rob Wertheimer with Melius Research. Your line is open.

Hi, good morning. I wanted to talk about just...

Good morning.

Thank you. Operationally, on Craftsman, as Sears goes through its process, do you need to spend more in advertising, et cetera, promotions to sort of pull those revenues to you? Make sure they don't get lost in transition. And is there any risk from whatever actions they make take in 4Q to load and do massive sales or whatever to push stuff through their channel? James M. Loree - Stanley Black & Decker, Inc.: Well, you never know how they're going to behave when they're under protection. But I will say that it's been a fantastic execution. And it's been a real partnership with our retail partner, Lowe's. The sales and marketing resources that they have brought to bear to make this program successful, in conjunction with the sales and marketing resources that we've invested, is like nothing that has ever been done in our industry. So I think the answer to your question is that we've done everything that we need to do to pull those sales from Sears into Stanley Black & Decker and Lowe's. And maybe some will drift out into some of our other retail partners, but we've got that well covered too as we talked about. So we're very pleased and very optimistic with the situation, about the situation. Donald Allan, Jr. - Stanley Black & Decker, Inc.: And we feel very well prepared for this. We've been preparing for this. All we didn't know was the date of when it would happen. So Jim referenced the connection between us and Lowe's going forward, and it is exemplary and it is out in front. We're likewise aligned in the hardware channel with Ace, we're likewise aligned with Amazon in the e-commerce space. So we are prepared in whatever fashion that Craftsman customer wants to find the product to make sure that we are front and center and ready to convert.

Thank you. This concludes the question-and-answer session. I would now like to turn the call back over to Dennis Lange for closing remarks. Dennis Lange - Stanley Black & Decker, Inc.: Shannon, thanks. We'd like to thank everyone again for calling in this morning and for your participation on the call. Obviously, please contact me if you have further questions. Thank you.

Ladies and gentlemen, this concludes today's conference. Thanks for your participation and have a wonderful day.