Welcome to the First Quarter 2019 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. Mr. Lange, you may begin.

Thank you, Shannon. Good morning, everyone, and thanks for joining us for Stanley Black & Decker's first quarter 2019 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 a 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 a.m. today. The replay number and the access code are in our press release. This morning, Jim, Don and Jeff will review our first quarter 2019 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'll 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 might make today. We direct you to the cautionary statements in the 8-K that we filed with our press release and 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 on our press release, we delivered a strong start to 2019. The company posted solid quarterly revenue growth and overcame the carryover impact of commodity currency and tariff related headwinds to deliver modest earnings expansion. First quarter revenues were $3.3 billion, up 4% versus prior year. This included a robust 5% organic growth and 3% from acquisitions, which were partially offset by a 4-point currency headwind. Price continues to materialize with 2 points of growth attributable to price in the quarter. And Tools & Storage continued its impressive performance, delivering 7% organic growth with all regions and business units contributing. The tools team is leveraging a powerful set of catalysts complemented by an intense focus on commercial execution to consistently deliver above-market growth. And once again, Craftsman, e-commerce, new product innovation, and Irwin/Lenox helped propel the Tools & Storage performance. You'll hear more from Jeff Ansell on this during his remarks. Industrial, total revenues grew 10% as the Nelson and IES Attachments acquisitions were partially offset by automotive market pressure and currency. And Security demonstrated forward progress delivering both operating margin dollar and rate improvement versus 1Q 2018. And a year into our two-year strategic review process, the security team has a strategy along with a detailed plan and is in full execution mode on the business transformation. Don Allan will provide some more color during his remarks and we will cover in depth at our May 16 Investor Day. Adjusted EPS for the quarter was $1.42, up 2%. With a sharp focus on cost control, our business teams delivered a strong operational performance and overcame approximately $160 million of 2018 carryover headwinds in the first quarter. Our outperformance was very encouraging as we…

Thank you, Jim. And good morning, everyone. I will now take a deeper dive into our business segment results for the first quarter. Tools & Storage revenue increased 3% as 7% organic growth was offset by 4 points of currency pressure. Organic growth included 5 points of volume and 2 points of price. We continue to see the benefits from the price actions we executed in the back half of 2018, as well as the additional price increases implemented this year in response to the List 3 tariffs. The operating margin rate for the segment was 12.1%, down from the prior year as the benefits of volume leverage, pricing and cost control were more than offset by the 2018 carryover impacts of currency, commodity inflation, and tariffs. These carryover headwinds amounted to $160 million for Stanley Black & Decker in the first quarter, with much of this impacting the Tools & Storage segment. The strong organic growth and related share gains were experienced across each region and SBU. So, looking at the results on a geographic basis, North America once again led the way, up 11% driven by the US retail channel, which posted high-teens growth. North America's growth continued to be fueled by the Craftsman brand rollout, new product innovations, and price realization. We continue to see great momentum with the Craftsman rollout at our major retail partners and have seen a strong end user reception as the product has hit the shelves. We couldn't be more pleased with the progress so far. More color to come on that, as well as our STANLEY and STANLEY FATMAX rollouts from Jeff later. Europe delivered 3% organic growth in the quarter despite a continuation of slower market conditions across several countries within the region. The team continued to leverage our strong…

Thank you, Don. I'd like to share a few updates on our latest innovations and brand initiatives, including our recent launch of a new DeWalt 20 volt compact series called Atomic, as well as the incredible progress of Craftsman. Our global Tools & Storage business had strong first quarter performance, with high single-digit organic growth led by North America. A key component of this success was our continued focus on innovation-led growth. For example, our DeWalt FlexVolt platform was up double-digits in the quarter as we continued to grow, in the system, our core products as well as expanding into the outdoor category with FlexVolt. We're also pleased to announce the global launch of the 20-volt Atomic series, a range of tools that combines performance and durability in a compact format. The Atomic series augments our existing DeWalt 20 volt line, which is now the largest professional cordless system in the world, with well over 200 products. With this global program just beginning to ship, we expect to see incremental growth in the pro power tool space within the year. During our May Investor Day, we will detail this and other breakthrough innovations. Regarding Craftsman, the momentum and success from 2018 carried into 2019, with growth across all categories in Craftsman. Our Craftsman expansion plan remains on track and we are well on our way to delivering our $1 billion target by 2021. Now, I'll turn it back over to Jim to wrap today's presentation.

Thanks, Jeff. And as you heard, it was a solid start to the year as we delivered above-market organic growth, leveraging that array of growth catalysts. I'm proud of the team's efforts and execution, which have positioned us to achieve decent LTM financial results, amidst a host of macro challenges. As these challenges anniversary, we're looking forward to a resumption of margin accretion in combination with our excellent growth. And lastly, I want to remind everyone that we will be hosting an Investor Day on the morning of May 16th in New York City. This will be a great opportunity for us to communicate our strategic and financial objectives, and discuss how we are pursuing growth, margin expansion and transformation at Stanley Black & Decker. As you can tell, we are passionate about delivering growth with margin expansion and this will be prominently featured. We will also showcase members of our business unit and other key functional management teams. So, please reach out to Dennis if you're interested in attending, and we look forward to seeing you there. And we're now ready for Q&A. Dennis?

Great. Thanks, Jim. Shannon, we can now open the call to Q&A please. Thank you.

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

Thank you. Good morning, everyone.

Good morning, Jeff.

Jim, I was wondering if you could address a little bit more – as you said in your opening monologue that the headwinds are dissipating. And I think we all kind of understand the comp issue and how it was front-loaded here in Q1. But can you provide a little bit more color on how you see that playing out in the back half? And, I guess, part and parcel to my question is, it does look like we might be getting close to trade tariff resolution. And how do you think about maintaining price if we do get tariff relief? Thank you.

Sure. Well, first of all, the massive hit that we took in the first quarter from the carryover headwinds goes down sequentially in the second quarter, but it's still over $100 million – sorry, just below $100 million. Right around $85 million. And then, in the back half of the year, the price actually more or less offsets the remaining headwinds, the remaining carryover and whatever modest headwinds that we have this year. So, in general, that's just how the math works. And so, as I said, assume a stable cost and tariff environment. If the tariffs go away, that's a pretty significant reduction in headwinds. I think the total amount of tariffs for the year is just under $100 million or thereabouts. So, most of the tariff impact is List three3. And from what we hear, the way the trade negotiations are going, that would be the most likely tariffs to be removed, List 3. And keeping in mind, to the last part of your question, a lot of the pricing activity was not tariff related, but also inflation related. And so, I think that when you finally add it all up, the price recovery against the tariffs only amounted to between 40% and 50%. And so, there was a big chunk of inflation-related cost that was not covered by the price as well as some of the tariffs. So, I think that – we'll see how that all plays out, but I think there's sufficient inflation and headwinds to justify a fairly stable price environment going forward.

Let me just clarify that the number that Jim gave on 2Q was net of price. I just want to make sure people understand that's not gross headwinds. And the other thing to keep in mind is if all the tariffs went away – we've communicated this previously – the impact net of price on an annualized basis would probably be somewhere around $40 million to $50 million. But that's all tariff. And if List 3 happens, it's probably a third to 50% of that number.

Thank you. Our next question comes from Josh Pokrzywinski with Morgan Stanley. Your line is open.

Hi. Good morning, guys.

Good morning.

Good morning.

Yeah. I guess, just to follow-up on Jeff's question there with the margin expansion that you guys talked about in Tools. I think, Don, you mentioned a few times, strong margin expansion in the second half. Should we still expect to see something in 2Q and how has that changed, just given maybe some of the timing of headwinds or price increases or the competitive dynamic out there with respect to price?

Yeah. As we were saying over the last couple of months, we were anticipating a kind of modest improvement in margin rate in the second quarter. And we still believe that will be the case. And as we get into the third and the fourth quarter, both Jim and I indicated, we expect the incremental accretion rate for Tools to become quite meaningful, and that's still the expectation at this stage.

Thank you. Our next question comes from Michael Rehaut with J.P. Morgan. Your line is open.

Thanks. Good morning, everyone.

Good morning, Mike.

Congrats on the quarter. Question I have relates to the Tools & Storage performance. Obviously, you continued great execution on the top line. Given some of the new initiatives that you launched, or Jeff referred to, I was hoping to get a sense of what you think about the mid-single digit growth for the segment for 2019. If you can kind of break that down by looking at also the – break it down by some of the growth initiatives [indiscernible] such as Craftsman, such as FlexVolt as opposed to the core market growth and if that's changed at all, particularly given the first quarter performance?

Yeah. As we've indicated previously, we think Craftsman is about 3 points of growth for the full year. The first quarter was fairly representative of that. And we don't see any different view at this stage. We've indicated mid-single-digits. We've also said that that probably means we're – our view is we are floating around 6% and possibly 7%, and we still feel like that's the right estimate at this stage. What we don't know is just how impactful Craftsman is going to be. It's been very positive. And if those trends continue, those numbers can be a little bit better as the year goes on. But I look at the core underlying markets, they're performing well. We had some weak markets in Europe, as we talked about, where we don't have a lot of market growth right now in many of the countries, but we are demonstrating growth as we had 3% organic growth in the first quarter. So, we're outpacing there. And that really has more to do with just strong commercial activities, product innovation, et cetera, like the European team has done for several years now. In North America, you saw the magnitude of the growth of double-digits and the impact of Craftsman being in there. But even if you exclude that impact, it's still pretty significant performance, which would include things like FlexVolt and other matters as well. So, we still feel like that's a reasonable estimate at this stage. We all have to keep in mind that it is the first quarter. And as we get to the second quarter and we complete the rollout of Craftsman and Lowe's through all the different stores. We'll have a good sense of where we are and a read in the back half of the year and what that means. But I think, at this stage, we feel good about an organic growth number about 6% to 7% for Tools.

Thank you. Our next question comes from Tim Wojs with Baird. Your line is open.

Hey, guys. Good morning. Good start to the year.

Good morning. Thank you.

I guess just maybe on – back on Tools and growth in the quarter, relative to your expectations a couple of months ago, where do you think you saw the outperformance internally? Was it better sell-through at retail? Was it the types of products that consumers are buying? Just a little bit more color on maybe what was better relative to your expectations in the quarter.

I guess, kind of all of the above. The sell-through has been fantastic and the product introductions have been really well received. And so, it's a combination of all those factors. And I think also, the market is more stable than, I think, we were thinking a quarter ago, although there is some choppiness in housing and so on. I think, in general, it's more stable than we would have expected at this point in time. And the interest rate reductions have helped a lot.

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

Thanks. Good morning. You've given some very good color on your updated sort of macro thoughts around North America demand. I just wondered if you could give us an update around expectations for organic growth firm-wide in Europe and the emerging markets. Those were sort of flattish both in Q1. Just wondered how you think the rest of the year will play out for Europe and EM.

Yeah. I think what we experienced in Q1 is not going to be dramatically different other than, I would say, probably emerging markets might start to demonstrate more growth as we get to the back half. They clearly are dealing with some difficult circumstances in two countries that I mentioned, of Turkey and Argentina. But we do start to kind of lap that in the middle of the year, and so the comp gets a little easier from that perspective to demonstrate organic growth. So, I think we'll see a little bit of an improvement in the organic growth profile in the back half for emerging markets. But I think Europe will continue to be kind of a low-single digit growth performance for a good part of the year and North America will continue to be strong.

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

Thanks. Good morning, guys.

Hi, Nigel.

I'm sure you're glad to get 1Q behind you. So, it's, obviously, great news on SG&A. Big reduction there. And I'm assuming that's where the bulk of the cost action is coming through in that line. I know you're going to address this more on the upcoming May conference, but maybe you could talk about the margin transformation initiatives underway, and is that more of a capacity and gross margin initiative? And how does that differ from some of the regular way restructuring you're currently doing? Thanks.

Sure. So, the margin resiliency initiative, we like to call it, gets us back to kind of our historical margin accretion of about 50 basis points a year after we get back to our prior levels, which we will accomplish pretty much this year, start to have margin accretion again. And so, really, the intent of this is – it may have a modest 2019 impact, but the real impact will be 2021 and we'll be driving that 50 basis point and possibly even more margin accretion going forward. And we'll get into a fair amount of detail about this in – on May 16th. But the general thrust is utilizing technology and technological advancements to enhance value-creation initiatives that already exist. So, it could be as it relates to price, it could be as it relates to procurement and so on. So, there's different categories or buckets, if you will, where we're taking technology and utilizing kind of leading-edge practices to data analytics, artificial intelligence, cobotics, those types of things to actually enhance our margins and create value. That's the basic idea.

Thank you. Our next question comes from Nicole DeBlase with Deutsche Bank. Your line is open.

Yeah. Thanks. Good morning, guys.

Good morning.

Good morning.

So, I just wanted to dig into 2Q a little bit. It seems like that's the thing that the investors are asking about most or grappling with since – it seems like it's not a whole lot different than normal seasonality for me, but, essentially, consensus is doubling versus 1Q excluding the tax benefit. So, if you guys could kind of talk through the big puts and takes. I know we talked about the $85 million net headwind. What's the gross headwind expected? If you could talk through organic growth since I think the comp gets a bit tougher year-on-year, tax rate, and anything else that we need to consider when we're thinking about bridging from 1Q to 2Q?

Clearly, the volume overall is the biggest driver where the volume of the whole company will probably be up $400 million to $450 million sequentially from Q1 to Q2. So, that's clearly a big driver. You also have – the gross headwinds go down on an absolute basis by about $30 million to $35 million from Q1 to Q2, while the price benefit stays relatively consistent. So, you get a benefit there as well. And then, some of our cost actions were not completed until Q1. So, you get a full quarter benefit of that in Q2. Those are really the three main drivers that are driving that. There is a little bit of a modest impact from a lower tax rate in Q2 versus Q1, as well as many of the tax benefits we're expecting in the first half versus the back half of the year. Those are the four main drivers that would get you to that number.

Thank you. Our next question comes from Joe Ritchie with Goldman Sachs. Your line is open.

Thanks. Good morning, everyone.

Good morning.

Good morning.

Maybe just touching on the focus of the Analyst Day. I know we're going to talk a lot about the margin expansion. But maybe just a broader question around, like, is this a pivot? You guys have been focused very much so on the growth initiatives historically the 22/22. And now, it seems like this Analyst Day is going to be a little bit more focused on the margin expansion opportunities. And so, maybe discuss a little bit just kind of the shift in philosophy there.

It's not really a huge shift in philosophy. It's really kind of back to the future. We've always in the last, I'd say, five to seven years we have always been focused on growth and margin expansion. And if you go back and look at the years preceding last year, there is a pretty strong track record of strong organic growth, acquisitive growth, plus margin expansion. And that formula has been very lucrative for shareholders and we intend to get back to that. So, the reason we, obviously, got off that track through one year has everything to do with the headwinds that we've talked about ad nauseam. So, this is something that we are fixated on doing in this company is doing both. And I know a lot of companies that see it as either/or. But we don't think of it that way. And we have the capability and the track record to expand margins while growing, and we intend to get back to that beginning in 2019, but really in earnest in 2020 and 2021.

Thank you. Our next question comes from Deepa Raghavan with Wells Fargo. Your line is open.

Good morning. Good quarter there, Jim and Don.

Thank you.

Thank you.

Your outlooks for Q2, just a little bit touching on that given that it's an outdoors season, heavy season, outlooks looks like it's 250-ish at midpoint. Can you talk about momentum into Q2 including possibly any point of sales [indiscernible] North America and what are some of the upside and downside case in Q2? We know it's an outdoor season. It's meaningful to Craftsman/MTD just the weather in there. But on a year-on-year basis, is there anything else that other than what you've addressed earlier? That would be helpful. Thank you.

Yeah. So, I'll pass it over to Jeff in a minute to maybe give us some commentary on the outdoor season view for us. But as I mentioned and Jim mentioned, the POS was strong in the first quarter. We do think that trend will continue into the second quarter and likely for the remainder of the year. The other drivers are the reason for why we think the business will continue to improve around margin rate in the second quarter, so we can achieve what I described. But let me give Jeff a chance to give a little bit more color on our view of the outdoor season.

So, to reiterate what Don just said, POS was robust as were the organic growth numbers in North America in Q1. There is not a great deal of outdoor activity in that quarter. It more starts in the second quarter, runs through the third. But what we did see was a slow start to the outdoor season, as much of the US market was underwater, if you remember, early days of the spring. That changed quite significantly in the last four weeks. So, a season that started out negative has turned positive at this point, certainly, for us. And we're comping relatively sluggish outdoor numbers from last year. If you remember, last year's outdoor season wasn't a really robust one. So, it's been really positive for the last four weeks and we have every reason to believe it will continue to be positive through the second quarter, one, given the kind of sluggish comps from last year, but also the new product development that we put into the market this year in the DeWalt brand as well as the Black & Decker brand and, most recently, the Craftsman brand. So quite positive.

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

Hi, good morning. I just wonder if you could give any kind of an update on Craftsman production, US production, just progress. And then, any thoughts on evolutions at MTD and if you're able to achieve better results through rating [ph] them? Thanks.

I'll start with the first part of the question, then turn it over to Jim for the second part. Craftsman domestic manufacturing is in a really good place. We essentially began the process with almost no domestic manufacturing for Craftsman and what we procured. To this point, over the course of about 12 months, we've gone from what was almost 0% to about a third of the product line manufactured domestically today on our plan to double that going forward, which we'll give you more detail around that at the May Investor Day. But the inertia created by Craftsman, and then combining that with domestic manufacturing, the combination of those two things has led us to growth in every category that is Craftsman today. So, we're quite pleased with where we are. But I would say. we have yet a lot to do.

Great. So, on MTD, really excited about the transaction, including the option. But as excited about the people that we get to work with because, frankly, the transaction has got this – got us all set up with a confluence of interests in the sense that any EBITDA growth that occurs will kind of share the benefits post-closing of the 20%, will share the benefits 50/50 in terms of the ultimate determination of the option price. And that structure has put us in a position where we are working together in earnest on value creation opportunities for MTD that include everything from growth to cost reduction, to margin expansion and so on. And it's going to be a multi-year program. And as we're running it like an acquisition integration, while subscribing to all the principles of antitrust that we have to subscribe to, and we're very confident that we will get MTD's profitability up to a point where it will be able to slot it into our portfolio in 2021 or 2022 in a way that is really accretive for us and is a great deal for the folks at MTD.

Thank you. Our next question comes from Justin Speer with Zelman & Associates. Your line is open.

Hey, guys. Thank you very much. I just wanted to further unpack the Tools & Storage growth and what you're looking for underlying market growth for this business and how that kind of sequences as the year progresses? And then, dovetailing that question with, is the reality that if we do get trade resolution, do you think you'll be able to hold on to most of that price? Do you think you'll be able to hold on to the potential savings from tariffs going away?

Yeah. As I mentioned on growth earlier for Tools & Storage, we have a view of 6% to 7% for the full year. We expect Craftsman to be about 3 points of that, which would demonstrate some modest growth over GDP, if you look at it globally, not assume being a point or point and a half. So, that's pretty significant in some camps around the world. But that's our view and we think that will continue to be the case. And we're very hopeful that Craftsman outperforms expectations, and maybe some other product innovations and other growth catalysts do as well. And we'll see as the year progresses. We talked about how we have a lot of work to do on Craftsman to complete the rollout in the second quarter. And then, we have to focus on the rollout of other brands and some of our other customers. So, we have a lot of work to do over the year to make this happen. But we're positive at this stage and we'll continue to provide updates along the way, in particular in July and October.

Thank you. Our next question comes from Robert Barry with Buckingham Research. Your line is open.

Hey, guys. Good morning.

Good morning.

Good morning.

Congrats on the solid start.

Thanks.

I just wanted to actually clarify a couple of things. One is, just why the Industrial outlook is weaker and how much of that weakness happened in 1Q? And then, just on a couple P&L items, that price and commodities are still kind of plus 150, minus 150 and if there is any kind of potential upside or downside to those values just based on what we're seeing with commodities?

Yeah. I think for Industrial, our view is a little bit worse than it was in January as we saw the automotive light vehicle production was down almost 5% in the first quarter, which was worse than projections. It's supposed to be down a little bit, smaller number in the second quarter, and then begin to moderate in the back half of the year. We do think systems will start to return in the back half of the year. That's the feedback we're getting from a lot of our key customers. And so, that's clearly a pressure point, although it's a modest pressure point versus expectations. I think we were thinking relatively flat back in January. Now, we're just down modestly as a result of that. I think the engineered fastening team is doing a great job managing through this cycle with the auto industry and looking for opportunities in some of the – and the Nelson acquisition that they've done as well as the other aspects of the Industrial fastener business within their world. So, they continue to be focused on that. The headwinds, as we mentioned, have gone up a little bit overall, $20 million due to FX. And at this stage, commodities are not changing dramatically. Although, we think as we go through the year that could be an opportunity that we see emerge as the year goes on. But. right now, it's not flowing through as an opportunity for us to capture in our P&L at this stage. And then, tariffs are bit of an open wild card at this stage as to what happens. Do we have a deal with China in the future? And if we do, do all the tariffs go away? Or as Jim said, do they partially go away? It is a factor that we see. But we feel good about where we're positioned as a company to deal with these headwinds, even though we saw modest increase in them. It feels like, as we go throughout the year, the ones in commodities and tariff feel like there is a possibility for an opportunity [indiscernible] to get smaller. However, we could potentially see a little bit more pressure in currency as we go throughout the year. We certainly saw the volatility of that last year, but I think that –currency tends to be something that's easier for us to manage if that's the only major headwind we are dealing with.

Thank you. Our next question comes from Michael Wood with Nomura Instinet. Your line is open.

Hi. Good morning. I was hoping you could provide some color in terms of the – you gave a very explicit 1Q guidance, which you beat operationally, you said, by about $0.25 – sorry, $0.15 or so excluding the timing of the tax. Curious if there was some other pull forward in 1Q that didn't allow you to flow that $0.15 beat into your 2019 guidance?

As I mentioned in my commentary, is that we actually did have an operational outperformance of $0.15 in the first quarter, but we did see a $20 million increase in currency or $0.10 of an impact related to that. So, the net benefit is about $0.05. And we felt, at this stage, the prudent thing to do, to let that flow through. Let's see if we get resolution on China trade. Let's see if some of the trends that I had mentioned emerge in the volume of Tools, as well as the headwinds associated with commodity and tariffs. And so, it's a prudent first step and we'll see how things progress in the next quarter.

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

Yes. Good morning.

Good morning.

Congratulations on a good quarter.

Thanks.

Just on Craftsman, thinking about second quarter and the dynamics around the Craftsman brand, can you update us on the timing of the load-in? I think you mentioned earlier that, Lowe's, you expected that to be complete in the second quarter. But have you started the Amazon load-in yet? And if so, how far into that process are you? And finally, can you update us on the timing of the load-in Home Depot on the STANLEY and FATMAX and how long that will take to complete? Thanks.

Yeah. This is Jeff. I'll take the question. I'll give you the status first of STANLEY, STANLEY FATMAX and then we'll migrate to Craftsman. We've just begun the process of rolling out the STANLEY and STANLEY FATMAX products that we highlighted last earnings call. So, they are just flowing through the supply chain, into stores. You will see those product set – the first phase of that set this coming month. So, in the month of May, you'll see those things set at store level. So, no underlying POS or any of that at this point, but the rollout is going quite well. And so, we're very positive on that. Regarding Craftsman, probably similarly, we've had greater demand for the product than we anticipated. And as such, we've expanded our view of the size of Craftsman and the timing of Craftsman previously. In order to make certain that we can accommodate that increased demand via supply, we have elected to move the rollout of new customers on Craftsman to the early parts of the second half of this year. So, in an attempt to make sure, we can satisfy the customers that we do have today and the demand that the end user has created, we pushed those back just a bit, but they will begin very early second half, and we'll roll those things out in the cadence we described, but starting at that point and time. So, all positive underlying reasons to do those things. And again, we're quite positive with both the rollout of STANLEY, STANLEY FATMAX and Craftsman across all categories.

Thank you. Our next question comes from Ken Zener with KeyBanc. Your line is open.

Good morning, everybody.

Hey, Ken.

Good morning.

Jeff, can you talk to the outdoor category given MTD and Craftsman? Specifically kind of a bigger picture, but what constraints the expansion of cordless applications into gas? Is it your guys' internal R&D? Is it just the market price? Or you don't want to be the bleeding edge? Thank you very much.

Well, it has advanced quite significantly in the last, you'd say, two years, right? So, there have been cordless – non-gas cordless outdoor products from us for almost three decades. But the cost curve has enabled us to beat us and others to get electric products competitively priced with petrol really for the first time in the last 12 months. And at that point, then the consumer has the decision to make. They would either choose petrol, which they are accustomed to today, or migrate to electric. And that's a process that's beginning as we speak. So, I'd say the technology enables that today. So, you see this in categories like string trimmers, hedge trimmers, blowers, chainsaws, things that historically have been gas driven. And that migration has happened relatively rapidly and you'll see – if you survey retail today, you'll see examples under the Craftsman brand where we have NCAP's registration that says, you choose your power source. So, it will be gas product or the electric equivalent at the same price, allowing the user to make the decision, which has been the first time in history we've ever been able to make that claim or do that. And it's going really well. So, I don't think there's any technological hurdles with it, in that sense. As you get into higher and higher output products, walk behinds, ride-on mowers, there is still a gap between the value proposition of petrol or gas and electric. And we and others are working to close that gap, but there's probably a little more work to be done there. But the early read is very positive and the electrification of outdoor products being led really by us across brands like Black & Decker, DeWalt and Craftsman. So...

One of the things that we're doing to take advantage of this period where we own 20% of MTD and have not yet exercised the option is to collaborate on R&D because it's an application challenge. It's not just a battery challenge. It's a system challenge. So, their expertise in the actual units of outdoor power equipment as we go up the power curve and our expertise in battery technology and application to lower power output type products, it's a great combination – best combination in the industry to tackle this and we're going to be out in front on that one.

Thank you. Our next question comes from Susan Maklari with Credit Suisse. Your line is open.

Good morning.

Good morning.

Good morning.

I wanted to focus a little bit on the cash flows and the balance sheet. On the last call, you talked to taking a defensive approach to cash flows this year with a focus on deleveraging. And with the operating environment coming in a bit more stable relative to your initial expectations, are there any changes to your capital allocation plans for this year?

There really isn't any significant changes to our capital allocation strategy. As we thought about January, we are preparing the company for a slow growth environment. And we were concerned about housing, in particular, what was happening as interest rates had been rising in the previous year and there was talk about continued increases in that area and what that could mean for housing. As Jim mentioned, that's changed a lot in the last three months where now the Fed has a different kind of position on interest rates and, actually, we've seen a little bit of a reversal in that trend, and that's had a bit of a positive impact on housing. But we're still dealing with a relatively – a little bit of a slow growth environment in certain pockets. We have a slow automotive industry. Housing is doing okay, but it's not robust at this stage. And so, we're not overly concerned about the economy at this view. We feel good about how we've set up the company and to be prepared for, as we mentioned, various different environments, and this was one of them. And the importance of our capital allocation is, we have to keep in mind that, in the previous couple of years, we've done some significant capital allocation transactions, including buying back stock, acquisitions of IES, MTD, Nelson Fasteners and then, before that, we had Craftsman and we had the Newell Tools acquisition. So, we've allocated a fair amount of capital to these different areas. So, a couple of things are happening this year. One, we want to get our debt to EBITDA ratio down closer to two times and we will achieve that with the current cash flow view and projection of the business. And that will really position us to be able to look at other allocation strategies in the M&A world as we go into 2020. And, frankly, we need to absorb a lot of those transactions that we've completed in that timeframe as well.

There is a massive amount of execution going on as you can glean from the conversations that we've had in the last hour, and it's all going really well. But as Don said, we kind of want to get our debt-to-EBITDA down to right around 2 and digest some of these things and exploit some of the growth opportunities that we have. And then, we'll look in, as we go into 2020 and beyond, does more repurchase make sense or do we have some acquisition opportunities that might be very attractive to help us continue to drive growth?

Thank you. Our last question comes from Justin Bergner with G Research. Your line is open.

Good morning. And thank you for taking my question.

Good morning.

Good morning.

You made a comment earlier in the call that you're hoping to reach 100% or close to a 100% free cash flow conversion in 2020. I'm not sure, but it seems like that's a pull forward of your earlier comment that that was more of a mid-term goal. Could you clarify that's the case and sort of maybe indicate what drivers will allow you to get that free cash flow conversion up to 100% 2020?

Yeah. I think one of the things that we've talked about in the last year or so is that we've had to really take some pressure on in our working capital as we dealt with these brand transitions which are fantastic opportunities for us to develop organic growth, and you've seen that track record in the Tools & Storage business. And, therefore, we haven't seen significant progress in working capital turns in the last – previous year as well as this year, we'll probably be relatively flat year-over-year. So, as we go into 2020, we see opportunity once those transitions has kind of gotten to a more stable state on a go-forward basis, and they're really embedded in our existing business. And then, we're dealing more with just new product introductions and new innovations, et cetera. That gives us an opportunity for us to make some significant improvement in working capital turns where we'll end this year probably somewhere between 8.5 and 8.8 for working capital turns as a company. And, therefore, we've been over 10. And so, there's no reason why we can't see that opportunity going into 2020 and 2021, which means that significant benefit will flow through free cash flow, which will allow our conversion to get back up to 100%.

Thank you. This concludes the question-and-answer 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.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. Have a wonderful day.