Stanley Black & Decker 10-Q 2024-06-29

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 29, 2024

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from [ ] to [ ]

Commission File Number 001-05224

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

1000 STANLEY DRIVE

NEW BRITAIN, CT 06053

(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)

REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE 860 225-5111

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

153,959,484 shares of the registrant’s common stock were outstanding as of July 25, 2024.

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION

STANLEY BLACK & DECKER, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

THREE AND SIX MONTHS ENDED JUNE 29, 2024 AND JULY 1, 2023

(Unaudited, Millions of Dollars, Except Per Share Amounts)

See Notes to Unaudited Condensed Consolidated Financial Statements.

STANLEY BLACK & DECKER, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

JUNE 29, 2024 AND DECEMBER 30, 2023

(Unaudited, Millions of Dollars, Except Share and Per Share Amounts)

See Notes to Unaudited Condensed

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The following discussion contains statements reflecting the Company's views about its future performance that constitute “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. There are a number of important factors that could cause actual results to differ materially from those indicated by such forward-looking statements. Please read the information under the caption entitled “Cautionary Statement under the Private Securities Litigation Reform Act of 1995."

Throughout this Management's Discussion and Analysis (“MD&A”), references to Notes refer to the "Notes To Unaudited Condensed Consolidated Financial Statements" in Part 1, Item 1 of this Form 10-Q, unless otherwise indicated.

BUSINESS OVERVIEW

Strategy

The Company is a global provider of hand tools, power tools, outdoor products and related accessories, as well as a leading provider of engineered fastening solutions. The Company continues to execute its long-term business strategy focused on organic growth in excess of the market and industry, geographic and customer diversification to foster sustainable revenue, earnings and cash flow growth. In recent years, the Company has re-shaped its portfolio to focus on its leading positions in the tools & outdoor and engineered fastening markets. Leveraging the benefits of a more focused portfolio, the Company initiated a business transformation in mid-2022 that includes reinvestment for faster growth as well as a $2.0 billion Global Cost Reduction Program through 2025. The Company’s primary areas of multi-year strategic focus remain unchanged as follows:

• Advancing innovation, electrification and global market penetration to achieve organic revenue growth of 2 to 3 times the market;

• Streamlining and simplifying the organization, and investing in initiatives that more directly impact the Company's customers and end users;

• Returning adjusted gross margins to historical 35%+ levels by accelerating the operations and supply chain transformation to improve fill rates and better match inventory with customer demand; and

• Prioritizing cash flow generation and inventory optimization.

In terms of capital allocation, the Company remains committed, over time, to returning excess capital to shareholders through a strong and growing dividend as well as opportunistically repurchasing shares. In the near term, the Company intends to direct any capital in excess of the quarterly dividend on its common stock toward debt reduction and internal growth investments.

Common Stock And Other Securities

In April 2021, the Board of Directors approved repurchases by the Company of its outstanding securities other than common stock up to an aggregate amount of $3.0 billion. No repurchases have been executed pursuant to this authorization to date.

Divestitures

On April 1, 2024, the Company sold its Infrastructure business to Epiroc AB for net proceeds of $728.5 million. The Company used the net proceeds to reduce debt in the second quarter of 2024.

Refer to Note Q, Divestitures, for further discussion.

Global Cost Reduction Program

In mid-2022, the Company launched a program comprised of a series of initiatives designed to generate cost savings by resizing the organization and reducing inventory with the ultimate objective of driving long-term growth, improving profitability and generating strong cash flow. These initiatives are expected to optimize the cost base as well as provide a platform to fund investments to accelerate growth in the core businesses. The program consists of a selling, general, and administrative ("SG&A") planned pre-tax run-rate cost savings of $500 million and a supply chain transformation expected to deliver $1.5 billion of pre-tax run-rate cost savings by the end of 2025 to achieve projected 35%+ adjusted gross margins.

The SG&A cost savings are expected to be generated by simplifying the corporate structure, optimizing organizational spans and layers and reducing indirect spend. These savings will help fund $300 million to $500 million of innovation and commercial investments through 2025 designed to accelerate organic growth.

The $1.5 billion of pre-tax run-rate cost savings from the supply chain transformation will be driven by the following value streams:

• Strategic Sourcing: Implementing capabilities to source in a more efficient and integrated manner across all of the Company’s businesses and leveraging contract manufacturing;

• Operational Excellence: Leveraging the SBD Operating Model and re-designing in-plant operations following footprint rationalization to deliver incremental efficiencies, simplified organizational design and inventory optimization;

• Footprint Rationalization: Transforming the Company’s manufacturing and distribution network from a decentralized and inefficient system of sites built through years of acquisitions to a strategically focused supply chain, inclusive of site closures, transformations of existing sites into manufacturing centers of excellence and re-configuration of the distribution network; and

• Complexity Reduction: Reducing complexity through platforming products and implementing initiatives to drive a SKU reduction.

The charges associated with the supply chain transformation are reflected in the Non-GAAP adjustments detailed below in "Results From Operations" and the full year estimate of Non-GAAP adjustments detailed below in "2024 Outlook". The cash investment required to achieve the $1.5 billion of pre-tax run-rate supply chain cost savings is expected to be approximately $0.9 billion to $1.1 billion, of which approximately 40% is expected to be capital expenditures. Through 2023, the Company has made approximately $0.2 billion of these cash investments. The Company will continue prioritizing capital expenditures consistent with its existing approach and expects total capital expenditures, inclusive of the supply chain transformation, to be $375 million to $475 million for 2024 and to approximate 3.0% to 3.5% of net sales annually in 2025 and beyond.

During the first six months of 2024 and since inception of the program, the Company has generated approximately $295 million and $1.3 billion, respectively, of pre-tax run-rate savings, driven by lower headcount, indirect spend reductions and the supply chain transformation. These savings are comprised of supply chain efficiency benefits, which will support gross margin improvements as the benefits turn through inventory, and SG&A savings. The Company believes that it is on track to grow to approximately $2 billion of pre-tax run-rate savings by year-end 2025. In addition, the Company has reduced inventory by approximately $2.1 billion since the end of the second quarter of 2022 and expects further inventory and working capital reductions to support free cash flow generation in 2024.

Segments

The Company’s operations are classified into two reportable business segments: Tools & Outdoor and Industrial. Both reportable segments have significant international operations and are exposed to translational and transactional impacts from fluctuations in foreign currency exchange rates.

Tools & Outdoor

The Tools & Outdoor segment is comprised of the Power Tools Group ("PTG"), Hand Tools, Accessories & Storage ("HTAS"), and Outdoor Power Equipment ("Outdoor") product lines. Annual revenues in the Tools & Outdoor segment were $13.4 billion in 2023, representing 85% of the Company’s total revenues.

The PTG product line includes both professional and consumer products. Professional products, primarily under the DEWALT® brand, include professional grade corded and cordless electric power tools and equipment including drills, impact wrenches and drivers, grinders, saws, routers and sanders, as well as pneumatic tools and fasteners including nail guns, nails, staplers and staples, and concrete and masonry anchors. DIY and tradesperson focused products include corded and cordless electric power tools sold primarily under the CRAFTSMAN® brand, and consumer home products such as hand-held vacuums, paint tools and cleaning appliances primarily under the BLACK+DECKER® brand.

The HTAS product line sells hand tools, power tool accessories and storage products. Hand tools include measuring, leveling and layout tools, planes, hammers, demolition tools, clamps, vises, knives, saws, chisels and industrial and automotive tools. Power tool accessories include drill bits, screwdriver bits, router bits, abrasives, saw blades and threading products. Storage products include tool boxes, sawhorses, medical cabinets and engineered storage solution products.

The Outdoor product line primarily sells corded and cordless electric lawn and garden products, including hedge trimmers, string trimmers, lawn mowers, pressure washers and related accessories, and gas powered lawn and garden products, including lawn tractors, zero turn ride on mowers, walk behind mowers, snow blowers, residential robotic mowers, utility terrain vehicles (UTVs), hand-held outdoor power equipment, garden tools, and parts and accessories to professionals and consumers under the DEWALT®, CRAFTSMAN®, CUB CADET®, BLACK+DECKER®, and HUSTLER® brand names.

Industrial

The Industrial segment is comprised of the Engineered Fastening business and the Infrastructure business prior to its sale in April 2024. Annual revenues in the Industrial segment, inclusive of the Infrastructure business, were $2.4 billion in 2023, representing 15% of the Company’s total revenues.

The Engineered Fastening business primarily sells highly engineered components such as fasteners, fittings and various engineered products, which are designed for specific application across multiple verticals. The product lines include externally threaded fasteners, blind rivets and tools, blind inserts and tools, drawn arc weld studs and systems, engineered plastic and mechanical fasteners, self-piercing riveting systems, precision nut running systems, micro fasteners, high-strength structural fasteners, axel swage, latches, heat shields, pins, and couplings.

RESULTS OF OPERATIONS

As previously discussed, the Company sold its Infrastructure business on April 1, 2024. This divestiture did not qualify for discontinued operations and therefore, its results were included in the Company's Consolidated Statements of Operations and Comprehensive (Loss) Income in continuing operations through the date of sale.

Certain Items Impacting Earnings and Non-GAAP Financial Measures

The Company has provided a discussion of its results both inclusive and exclusive of certain gains and charges. The results and measures, including gross profit, SG&A, Other, net, Income taxes, and segment profit (including Corporate Overhead), on a basis excluding certain gains and charges, free cash flow, organic revenue and organic growth are Non-GAAP financial measures. The Company considers the use of Non-GAAP financial measures relevant to aid analysis and understanding of the Company’s results and business trends aside from the material impact of these items and ensures appropriate comparability to operating results of prior periods. Supplemental Non-GAAP information should not be considered in isolation or as a substitute for the related GAAP financial measures. Non-GAAP financial measures presented herein may differ from similar measures used by other companies.

With the exception of forecasted free cash flow included in “2024 Outlook” as discussed below, the Non-GAAP financial measures of gross profit, SG&A, Other, net, Income taxes, and segment profit (including Corporate Overhead), presented on a basis excluding certain gains and charges, as well as free cash flow, organic revenue and organic growth are defined and reconciled to their most directly comparable GAAP financial measures below. Due to high variability and difficulty in predicting items that impact cash flow from operations, a reconciliation of forecasted free cash flow to its most directly comparable GAAP estimate has been omitted. The Company believes such a reconciliation would also imply a degree of precision that is inappropriate for this forward-looking measure.

The Company’s operating results at the consolidated level as discussed below include and exclude certain gains and charges impacting gross profit, SG&A, Other, net, and Income taxes. The Company’s business segment results as discussed below include and exclude certain gains and charges impacting gross profit and SG&A. These amounts for the second quarter and year-to-date periods of 2024 and 2023 are as follows:

Second Quarter 2024

Year-To-Date 2024

Second Quarter 2023

Year-To-Date 2023

Below is a summary of the pre-tax Non-GAAP adjustments for the second quarter and year-to-date periods of 2024 and 2023.

Below is a summary of the Company’s operating results at the consolidated level, followed by an overview of business segment performance. Organic growth is utilized to describe the Company's results excluding the impacts of foreign currency fluctuations, acquisitions during their initial 12 months of ownership, and divestitures.

Consolidated Results

Net Sales: Net sales were $4.024 billion in the second quarter of 2024 compared to $4.159 billion in the second quarter of 2023, representing a decrease of 3% as a 2% increase in volume was more than offset by a 3% impact from the Infrastructure divestiture and a 1% decrease from both foreign currency and price. Tools & Outdoor net sales were flat compared to the second quarter of 2023, with DEWALT® and outdoor leading volume gains of 2% that were partially offset by a 1% decrease in both foreign currency and price. Industrial net sales decreased 20% compared to the second quarter of 2023 as a 20% impact from the Infrastructure divestiture and a 2% decrease from foreign currency was partially offset by a 2% increase in price.

Net sales were $7.894 billion in the first half of 2024 compared to $8.091 billion in the first half of 2023, representing a decrease of 2% driven by a 1% impact from the Infrastructure divestiture and a 1% decrease from foreign currency. Tools & Outdoor net sales decreased 1% compared to the first half of 2023 as a 1% increase in volume was more than offset by a 1% decline in both price and foreign currency. Industrial net sales decreased 12% compared to the first half of 2023 as a 10% impact from the Infrastructure divestiture, a 3% decrease in volume and a 1% decrease from foreign currency was partially offset by a 2% increase in price.

Gross Profit: Gross profit was $1.141 billion, or 28.4% of net sales, in the second quarter of 2024 compared to $932.1 million, or 22.4% of net sales, in the second quarter of 2023. Non-GAAP adjustments, which reduced gross profit, were $33.5 million for the three months ended June 29, 2024 and $51.4 million for the three months ended July 1, 2023. Excluding these adjustments, gross profit was 29.2% of net sales for the three months ended June 29, 2024, compared to 23.6% for the three months ended July 1, 2023, primarily due to lower inventory destocking costs, supply chain transformation benefits and lower shipping costs.

Gross profit was $2.250 billion, or 28.5% of net sales, in the first half of 2024 compared to $1.768 billion, or 21.8% of net sales, in the first half of 2023. Non-GAAP adjustments, which reduced gross profit, were $47.9 million for the six months ended June 29, 2024 and $124.8 million for the six months ended July 1, 2023. Excluding these adjustments, gross profit was 29.1% of net sales for the six months ended June 29, 2024, compared to 23.4% for the six months ended July 1, 2023, driven by the same factors discussed above that impacted the second quarter of 2024.

SG&A Expenses: SG&A, inclusive of the provision for credit losses, was $828.6 million, or 20.6% of net sales, in the second quarter of 2024, compared to $837.3 million, or 20.1% of net sales, in the second quarter of 2023. Within SG&A, Non-GAAP adjustments totaled $27.6 million for the three months ended June 29, 2024 and $25.4 million for the three months ended July 1, 2023. Excluding these adjustments, SG&A was 19.9% of net sales for the three months ended June 29, 2024, compared to 19.5% for the three months ended July 1, 2023, as the Company increased investments to position the business to gain additional market share.

SG&A, inclusive of the provision for credit losses, was $1.680 billion, or 21.3% of net sales, in the first half of 2024, compared to $1,662.4 million, or 20.5% of net sales, in the first half of 2023. Within SG&A, Non-GAAP adjustments totaled $47.7 million for the six months ended June 29, 2024 and $46.1 million for the six months ended July 1, 2023. Excluding these adjustments, SG&A was 20.7% of net sales for the six months ended June 29, 2024, compared to 20.0% for the six months ended July 1, 2023, driven by the same factors discussed above that impacted the second quarter of 2024.

Distribution center costs (i.e. warehousing and fulfillment facility and associated labor costs) are classified within SG&A. This classification may differ from other companies who may report such expenses within cost of sales. Due to diversity in practice, to the extent the classification of these distribution costs differs from other companies, the Company’s gross margins may not be comparable. Such distribution costs classified in SG&A amounted to $131.8 million and $262.3 million for the three and six months ended June 29, 2024, respectively, and $130.7 million and $260.2 million for the three and six months ended July 1, 2023, respectively.

Other, net: Other, net totaled $226.5 million in the second quarter of 2024 compared to $66.6 million in the second quarter of 2023. The increase in 2024 compared to 2023 is driven by environmental remediation reserve adjustments. Excluding Non-GAAP adjustments, Other, net, totaled $78.1 million and $76.9 million in the second quarter of 2024 and 2023, respectively, relatively in-line versus prior year.

Other, net totaled $306.5 million in the first six months of 2024 compared to $130.3 million in the first six months of 2023. The year-over-year increase was driven by the same factor discussed above that impacted the second quarter of 2024. Excluding Non-GAAP adjustments, Other, net totaled $161.6 million and $147.6 million for the first six months of 2024 and 2023, respectively, primarily driven by higher foreign currency impacts.

Refer to Note O, Contingencies, for additional information on the environmental remediation reserve adjustment relating to the Centredale site.

Loss on Sales of Businesses: During the first half of 2023, the Company reported a pre-tax loss of $7.6 million primarily related to the divestiture of a small business in the Industrial segment.

Asset Impairment Charge: During the first half of 2024, the Company recorded a pre-tax impairment loss of $25.5 million related to the Infrastructure business. Refer to Note Q, Divestitures, for additional information on the divestiture of the Infrastructure business completed in the second quarter of 2024.

Interest, net: Net interest expense was $78.4 million in the second quarter of 2024 compared to $99.4 million in the second quarter of 2023. On a year-to-date basis, net interest expense was $166.3 million in 2024 and $190.5 million in 2023. The year-over-year decreases were primarily driven by lower commercial paper balances in the second quarter of 2024.

Income Taxes: For the three and six months ended June 29, 2024, the Company recognized an income tax benefit from continuing operations of $2.9 million and income tax expense of $25.9 million, respectively, resulting in effective tax rates of 13.1% and 98.9%, respectively. Excluding the tax effect on Non-GAAP adjustments, for the three and six months ended June 29, 2024, the Company recognized income tax expense on continuing operations of $52.7 million and $88.3 million, respectively, resulting in effective tax rates of 24.3% and 26.2%, respectively. These effective tax rates for the three and six months ended June 29, 2024 differ from the U.S. statutory tax rate of 21% primarily due to non-deductible expenses, losses for which a tax benefit is not recognized, and U.S. tax on foreign earnings, partially offset by the remeasurement of uncertain tax position reserves, tax credits, and state income taxes.

For the three and six months ended July 1, 2023, the Company recognized an income tax benefit from continuing operations of $253.3 million and $229.6 million, respectively, resulting in effective tax rates of 334.2% and 95.7%, respectively. During the three months ended July 1, 2023, the Company revised its estimated annual effective tax rate to reflect a tax benefit from an intra-entity asset transfer of certain intangible assets in connection with the continued reorganization of the Company’s supply chain. Accordingly, the income tax benefit for the three months ended July 1, 2023 included an incremental interim tax benefit to reflect the impact of the change in the estimated annual effective tax rate to the prior interim year-to-date tax expense, which reversed in the fourth quarter of 2023. The effective tax rates for the three and six months ended July 1, 2023 differ from the U.S. statutory tax rate of 21% primarily due to the tax benefit associated with the intra-entity asset transfer described above, tax on foreign earnings at tax rates different than the U.S. tax rate, state income taxes and tax credits, partially offset by U.S. tax on foreign earnings, non-deductible expenses and losses for which a tax benefit is not recognized.

Excluding the tax effect on Non-GAAP adjustments, for the three and six months ended July 1, 2023, the Company recognized income tax expense on continuing operations of $12.2 million and $15.5 million, respectively, resulting in effective tax rates of (259.6)% and (25.0)%, respectively. As discussed above, the estimated annual effective tax rate, as adjusted for the impacts of Non-GAAP adjustments, was revised during the three months ended July 1, 2023 to reflect a tax benefit from an intra-entity asset transfer of certain intangible assets. Accordingly, the income tax expense for the three months ended July 1, 2023, excluding the impacts of Non-GAAP adjustments, included an incremental interim tax expense to reflect the impact of the change in the estimated annual effective tax rate to the prior interim year-to-date tax expense, which reversed in the fourth quarter of 2023. The effective tax rates for the three and six months ended July 1, 2023 differ from the U.S. statutory tax rate of 21% due to the items discussed above.

Refer to Note M, Income Taxes, for additional information on the impacts in interim periods of changes in the estimated annual effective income tax rate.

On December 20, 2021, the Organization for Economic Cooperation and Development (“OECD”) published a proposal for the establishment of a global minimum tax rate of 15% (“Pillar Two"). The Pillar Two rules provide a template that jurisdictions can translate into domestic law to assist with the implementation within an agreed upon timeframe and in a coordinated manner, which became effective for fiscal years beginning after January 1, 2024. To date, jurisdictions in which the Company operates are in various stages of implementation.

The OECD and other countries continue to publish guidance and legislation which include transition and safe harbor rules. The Company expects to avail itself of the transitional safe harbor rules in most jurisdictions in which the Company operates. There are, however, a limited number of jurisdictions where the transitional safe harbor relief does not apply. The Company expects the Pillar Two tax impact from these jurisdictions to be immaterial to its estimated annual effective rate for 2024 and continues to monitor developments in legislation, regulation, and interpretive guidance in this area.

Business Segment Results

The Company’s reportable segments represent businesses that have similar products, services and end markets, among other factors. The Company utilizes segment profit which is defined as net sales minus cost of sales and SG&A inclusive of the provision for credit losses (aside from corporate overhead expense), and segment profit as a percentage of net sales to assess the profitability of each segment.

The Company’s operations are classified into two reportable business segments: Tools & Outdoor and Industrial.

Tools & Outdoor:

Tools & Outdoor net sales decreased $13.5 million, or were relatively flat, in the second quarter of 2024 compared to the second quarter of 2023 as DEWALT® and outdoor leading volume gains of 2% were partially offset by a 1% decrease in both foreign currency and price. Organic revenue increased 1% in North America, decreased 3% in Europe and increased 5% in the rest of the world. During the second quarter of 2024, the U.S. retail point-of-sale demand was up modestly versus the prior year led by outdoor growth and recaptured DEWALT® cordless promotions.

Tools & Outdoor net sales decreased $44.3 million, or 1%, in the first half of 2024 compared to the first half of 2023, as a 1% increase in volume was more than offset by a 1% decline in both price and foreign currency. Organic revenue was flat in North America, decreased 3% in Europe and increased 6% in the rest of the world.

Segment profit for the second quarter of 2024 was $316.1 million, or 9.0% of net sales, compared to $102.0 million, or 2.9% of net sales, in the second quarter of 2023. Excluding Non-GAAP adjustments of $52.6 million and $55.8 million for the three months ended June 29, 2024 and July 1, 2023, respectively, segment profit was 10.4% of net sales in the second quarter of 2024 and 4.5% in the second quarter of 2023. The year-over-year increase was primarily due to lower inventory destocking costs, supply chain transformation benefits and lower shipping costs, which were partially offset by growth investments.

Segment profit for the first half of 2024 was $571.8 million, or 8.4% of net sales, compared to $120.7 million, or 1.8% of net sales, in the first half of 2023. Excluding Non-GAAP adjustments of $75.5 million and $135.0 million for the six months ended June 29, 2024 and July 1, 2023, respectively, segment profit was 9.5% of net sales in the first half of 2024 and 3.7% in the first half of 2023. The year-over-year increase was driven by the same factors discussed above for the second quarter of 2024.

Industrial:

Industrial net sales decreased $121.0 million, or 20%, in the second quarter of 2024 compared to the second quarter of 2023, as a 20% impact from the Infrastructure divestiture and a 2% decrease from foreign currency was partially offset by a 2% increase in price. Engineered Fastening organic revenues increased 2%, driven by aerospace growth which offset market softness in automotive and general industrial.

Industrial net sales decreased $152.5 million, or 12%, in the first half of 2024 compared to the first half of 2023, as a 10% impact from the Infrastructure divestiture, a 3% decrease in volume and a 1% decrease from foreign currency was partially offset by a 2% increase in price. Engineered Fastening organic revenues increased 4%, as aerospace and automotive growth were partially offset by general industrial market softness.

Industrial segment profit for the second quarter of 2024 totaled $66.8 million, or 13.5% of net sales, compared to $71.6 million, or 11.6% of net sales, in the corresponding 2023 period. Excluding Non-GAAP adjustments of $0.3 million and $8.5 million for the three months ended June 29, 2024 and July 1, 2023, respectively, segment profit amounted to 13.5% of net sales in the second quarter of 2024 compared to 13.0% in the second quarter of 2023. The year-over-year increase was primarily due to price realization and cost control.

Industrial segment profit for the first half of 2024 totaled $132.0 million, or 12.2% of net sales, compared to $139.0 million, or 11.3% of net sales, in the corresponding 2023 period. Excluding Non-GAAP adjustments of $6.0 million and $8.8 million for the six months ended June 29, 2024 and July 1, 2023, respectively, segment profit amounted to 12.8% of net sales in the first half of 2024 compared to 12.0% in the first half of 2023. The year-over-year increase was driven by the same factors discussed above for the second quarter of 2024.

Corporate Overhead

Corporate Overhead includes the corporate overhead element of SG&A, which is not allocated to the business segments. Corporate Overhead amounted to $70.3 million and $78.8 million in the second quarter of 2024 and 2023, respectively. Excluding Non-GAAP adjustments of $8.2 million for the three months ended June 29, 2024 and $12.5 million for the three months ended July 1, 2023, the corporate overhead element of SG&A was $62.1 million and $66.3 million for the three months ended June 29, 2024 and July 1, 2023, respectively.

On a year-to-date basis, the corporate overhead element of SG&A amounted to $134.5 million in 2024 compared to $154.5 million in 2023. Excluding Non-GAAP adjustments of $14.1 million for the six months ended June 29, 2024 and $27.1 million for the six months ended July 1, 2023, the corporate overhead element of SG&A was $120.4 million and $127.4 million for the six months ended June 29, 2024 and July 1, 2023, respectively.

RESTRUCTURING ACTIVITIES

A summary of the restructuring reserve activity from December 30, 2023 to June 29, 2024 is as follows:

For the three and six months ended June 29, 2024, the Company recognized net restructuring charges of $29.8 million and $44.8 million, respectively, primarily related to severance costs. The Company expects to achieve annual net cost savings of approximately $104 million by the end of 2025 related to the restructuring costs incurred during the six months ended June 29, 2024. The majority of the $42.3 million of reserves remaining as of June 29, 2024 is expected to be utilized within the next 12 months.

Segments:

The $45 million of net restructuring charges for the six months ended June 29, 2024 includes: $35 million in the Tools & Outdoor segment; $5 million in Industrial; and $5 million in Corporate.

The $30 million of net restructuring charges for the three months ended June 29, 2024 includes: $28 million in the Tools & Outdoor segment, $1 million of net reversals in the Industrial segment, and $3 million in Corporate.

The anticipated annual net cost savings of approximately $104 million related to the 2024 restructuring actions include: $91 million in the Tools & Outdoor segment; $5 million in the Industrial segment; and $8 million in Corporate.

2024 OUTLOOK

This outlook discussion is intended to provide broad insight into the Company's near-term earnings and cash flow generation prospects. The Company is updating 2024 guidance and expects diluted earnings per share to approximate $0.90 to $2.00 on a GAAP basis, revised from $1.60 to $2.85 ($3.70 to $4.50 excluding Non-GAAP adjustments, raised from $3.50 to $4.50). Free cash flow is expected to approximate $650 million to $850 million, raised from $600 million to $800 million. The Company expects second half free cash flow to fund the cash dividend and support an additional $400 million to $500 million short term debt reduction by the end of 2024.

The difference between 2024 diluted earnings per share outlook and the diluted earnings per share range, excluding Non-GAAP adjustments, is approximately $2.50 to $2.80, consisting primarily of charges related to the supply chain transformation under the Global Cost Reduction Program and environmental reserve adjustments.

FINANCIAL CONDITION

Liquidity, Sources and Uses of Capital: The Company’s primary sources of liquidity are cash flows generated from operations and available lines of credit under various credit facilities.

Operating Activities: Cash flows provided by operations were $573.0 million in the second quarter of 2024 compared to $264.4 million in the corresponding period of 2023, primarily driven by accelerated working capital improvements and timing within the year. Year-to-date cash flows provided by operations were $142.0 million in 2024 compared to cash flows used in operations of $21.9 million in 2023. The year-over-year change was primarily driven by higher earnings, partially offset by higher variable compensation.

Free Cash Flow: Free cash flow, as defined in the table below, was an inflow of $485.8 million in the second quarter of 2024 compared to an inflow of $196.1 million in the corresponding period of 2023. On a year-to-date basis, free cash flow was an outflow of $10.9 million and $158.4 million in 2024 and 2023, respectively. The year-over-year change in free cash flow was

primarily due to the same factors discussed above in operating activities, as well as higher planned capital expenditures in the first half of 2024. Management considers free cash flow an important indicator of its liquidity and capital efficiency, as well as its ability to fund future growth and provide dividends to shareowners, and is useful information for investors. Free cash flow does not include deductions for mandatory debt service, other borrowing activity, discretionary dividends on the Company’s common stock and business acquisitions, among other items.

Investing Activities: Cash flows provided by investing activities totaled $649.4 million in the second quarter of 2024, primarily due to net proceeds from sales of businesses of $735.6 million, partially offset by capital and software expenditures of $87.2 million. Cash flows used in investing activities totaled $69.2 million in the second quarter 2023, primarily due to capital and software expenditures of $68.3 million.

Cash flows provided by investing activities totaled $586.2 million in the first half of 2024, primarily due to net proceeds from sales of businesses of $735.6 million, partially offset by capital and software expenditures of $152.9 million. Cash flows used in investing activities totaled $130.4 million in the first half of 2023, primarily due to capital and software expenditures of $136.5 million.

Financing Activities: Cash flows used in financing activities totaled $1.368 billion in the second quarter of 2024, primarily driven by net short-term commercial paper repayments of $1.246 billion and cash dividend payments on common stock of $121.8 million. Cash flows used in financing activities totaled $175.8 million in the second quarter of 2023, primarily driven by cash dividend payments on common stock of $119.7 million and net short-term commercial paper repayments of $42.0 million.

Cash flows used in financing activities totaled $819.5 million in the first half of 2024, primarily driven by net short-term commercial paper repayments of $570.8 million and cash dividend payments on common stock of $243.6 million. Cash flows provided by financing activities totaled $148.4 million in the first half of 2023, primarily driven by proceeds from debt issuances, net of fees, of $745.9 million, partially offset by net repayments of short-term commercial paper borrowings of $327.9 million and cash dividend payments on common stock of $239.5 million.

Credit Ratings & Liquidity:

The Company maintains investment grade credit ratings from the major U.S. rating agencies on its senior unsecured debt (S&P A-, Fitch BBB+, Moody's Baa3), as well as its commercial paper program (S&P A-2, Fitch F2, Moody's P-3). There were no changes to any of the Company's credit ratings during the first half of 2024. Failure to maintain investment grade rating levels could adversely affect the Company’s cost of funds, liquidity and access to capital markets, but would not have an adverse effect on the Company’s ability to access its existing committed credit facilities.

Cash and cash equivalents totaled $318.5 million as of June 29, 2024, which was primarily held in foreign jurisdictions. Cash and cash equivalents totaled $449.4 million as of December 30, 2023, of which approximately 50% was held in foreign jurisdictions.

As a result of the Tax Cuts and Jobs Act (the "Act"), the Company's tax liability related to the one-time transition tax associated with unremitted foreign earnings and profits totaled $83 million at June 29, 2024. The Act permits a U.S. company to elect to pay the net tax liability interest-free over a period of up to eight years. The Company has considered the implications of paying the required one-time transition tax and believes it will not have a material impact on its liquidity.

The Company has a $3.5 billion commercial paper program which includes Euro denominated borrowings in addition to U.S. Dollars. As of June 29, 2024, the Company had commercial paper borrowings outstanding of $492.3 million, of which $317.4 million in Euro denominated commercial paper was designated as a net investment hedge. As of December 30, 2023, the Company had $1.1 billion of borrowings outstanding, of which $399.7 million in Euro denominated commercial paper was designated as a net investment hedge. Refer to Note H, Financial Instruments, for further discussion.

In June 2024, the Company amended and restated its existing five-year $2.5 billion committed credit facility with the concurrent execution of a new five year $2.25 billion committed credit facility (the “5-Year Credit Agreement”). Borrowings under the 5-Year Credit Agreement may be made in U.S. Dollars, Euros or Pounds Sterling. A sub-limit of an amount equal to the Euro equivalent of $800.0 million is designated for swing line advances. Borrowings bear interest at a floating rate plus an

applicable margin dependent upon the denomination of the borrowing and specific terms of the 5-Year Credit Agreement. The Company must repay all advances under the 5-Year Credit Agreement by the earlier of June 28, 2029 or upon termination. The 5-Year Credit Agreement is designated to be a liquidity back-stop for the Company's $3.5 billion U.S. Dollar and Euro commercial paper program. As of June 29, 2024 and December 30, 2023, the Company had not drawn on its five-year committed credit facility.

In June 2024, the Company terminated its 364-Day $1.5 billion committed credit facility ("the 2023 Syndicated 364-Day Credit Agreement") dated September 2023. There were no outstanding borrowings under the 2023 Syndicated 364-Day Credit Agreement upon termination and as of December 30, 2023. Contemporaneously, the Company entered into a new $1.25 billion syndicated 364-Day Credit Agreement (the "2024 Syndicated 364-Day Credit Agreement") which is a revolving credit loan. The borrowings under the 2024 Syndicated 364-Day Credit Agreement may be made in U.S. Dollars or Euros and bear interest at a floating rate plus an applicable margin dependent upon the denomination of the borrowing and pursuant to the terms of the 2024 Syndicated 364-Day Credit Agreement. The Company must repay all advances under the 2024 Syndicated 364-Day Credit Agreement by the earlier of June 27, 2025 or upon termination. The Company may, however, convert all advances outstanding upon termination into a term loan that shall be repaid in full no later than the first anniversary of the termination date provided that the Company, among other things, pays a fee to the administrative agent for the account of each lender. The 2024 Syndicated 364-Day Credit Agreement serves as part of the liquidity back-stop for the Company’s $3.5 billion U.S. Dollar and Euro commercial paper program. As of June 29, 2024, the Company had not drawn on its 2024 Syndicated 364-Day Credit Agreement.

The 5-Year Credit Agreement and the 2024 Syndicated 364-Day Credit Agreement, as described above, contain customary affirmative and negative covenants, including but not limited to, maintenance of an interest coverage ratio. The interest coverage ratio tested for covenant compliance compares adjusted Earnings Before Interest, Taxes, Depreciation and Amortization to adjusted net Interest Expense ("Adjusted EBITDA"/"Adjusted Net Interest Expense"). The Company must maintain, for each period of four consecutive fiscal quarters of the Company, an interest coverage ratio of not less than 3.50 to 1.00, provided that the Company is only required to maintain an interest coverage ratio of not less than (i) 1.50 to 1.00 for any four quarter period ending on or before the end of the Company’s second fiscal quarter of 2024, and (ii) 2.50 to 1.00 for any four quarter period ending after the Company’s second fiscal quarter of 2024 through and including the Company’s second fiscal quarter of 2025. For purposes of calculating the Company’s compliance with the interest coverage ratio, as defined in each credit agreement, the Company is permitted to increase EBITDA to allow for additional adjustment addbacks incurred prior to the end of the Company’s second fiscal quarter of 2025, provided that (A) the sum of the applicable adjustment addbacks incurred through and including the Company’s second fiscal quarter of 2024 may not exceed $500 million in the aggregate, and (B) the sum of the applicable adjustment addbacks incurred from the Company’s third fiscal quarter of 2024 through and including the Company’s second fiscal quarter of 2025 may not exceed $250 million in the aggregate; provided, further, that the sum of the applicable adjustment addbacks for any four quarter period may not exceed $500 million in the aggregate.

In March 2015, the Company entered into a forward share purchase contract with a financial institution counterparty for 3,645,510 shares of common stock. The contract obligates the Company to pay $350 million, plus an additional amount related to the forward component of the contract. In June 2024, the Company amended the settlement date to June 2026, or earlier at the Company's option.

Refer to Note G, Long-Term Debt and Financing Arrangements, for further discussion of the Company's financing arrangements.

OTHER MATTERS

There have been no changes in the Company’s critical accounting estimates during the second quarter of 2024. Refer to the “Other Matters” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Form 10-K for the year ended December 30, 2023 for a discussion of the Company’s critical accounting estimates.

There has been no significant change in the Company’s exposure to market risk during the second quarter of 2024. Refer to the Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Form 10-K for the year ended December 30, 2023 and subsequent related filings with the Securities and Exchange Commission for further discussion.

Disclosure Controls and Procedures

Under the supervision and with the participation of management, including the Company’s President and Chief Executive Officer and its Executive Vice President and Chief Financial Officer, the Company has, pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined under Rule 13a-15(e) of the Exchange Act). Based upon that evaluation, the Company’s President and Chief Executive Officer and its Executive Vice President and Chief Financial Officer have concluded that, as of June 29, 2024, the Company’s disclosure controls and procedures are effective.

Changes in Internal Control Over Financial Reporting

There has been no change in the Company’s internal control over financial reporting that occurred during the second quarter of 2024 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

CAUTIONARY STATEMENTS UNDER THE PRIVATE SECURITIES LITIGATION

REFORM ACT OF 1995

This document contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections or guidance of earnings, revenue, profitability or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new products, services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. Forward-looking statements may include, among others, the words “may,” “will,” “estimate,” “intend,” “could,” “project,” “plan,” “continue,” “believe,” “expect,” “anticipate,” “run-rate,” “annualized,” “forecast,” “commit,” “goal,” “prospect,” “target,” “design,” “on-track,” “position or positioning,” “guidance” or any other similar words.

Although the Company believes that the expectations reflected in any of its forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of its forward-looking statements. The Company's future financial condition and results of operations, as well as any forward-looking statements, are subject to change and to inherent risks and uncertainties, such as those disclosed or incorporated by reference in the Company's filings with the Securities and Exchange Commission.

Important factors that could cause the Company's actual results, performance and achievements, or industry results to differ materially from estimates or projections contained in its forward-looking statements include, among others, the following: (i) successfully developing, marketing and achieving sales from new products and services and the continued acceptance of current products and services; (ii) macroeconomic factors, including global and regional business conditions, commodity prices, inflation and deflation, interest rate volatility, currency exchange rates, and uncertainties in the global financial markets related to the recent failures of several financial institutions; (iii) laws, regulations and governmental policies affecting the Company's activities in the countries where it does business, including those related to tariffs, taxation, data privacy, anti-bribery, anti-corruption, government contracts and trade controls such as section 301 tariffs and section 232 steel and aluminum tariffs; (iv) the economic, political, cultural and legal environment in Europe and the emerging markets in which the Company generates sales, particularly Latin America and China; (v) realizing the anticipated benefits of mergers, acquisitions, joint ventures, strategic alliances or divestitures; (vi) pricing pressure and other changes within competitive markets; (vii) availability and price of raw materials, component parts, freight, energy, labor and sourced finished goods; (viii) the impact that the tightened credit markets may have on the Company or its customers or suppliers; (ix) the extent to which the Company has to write off accounts receivable, inventory or other assets or experiences supply chain disruptions in connection with bankruptcy filings by customers or suppliers; (x) the Company's ability to identify and effectively execute productivity improvements and cost reductions; (xi) potential business, supply chain and distribution disruptions, including those related to physical security threats, information technology or cyber-attacks, epidemics, natural disasters, pandemics, sanctions, political unrest, war or terrorism, including the conflicts between Russia and Ukraine, and Israel and Hamas and tensions or conflicts in South Korea, China and Taiwan; (xii) the continued consolidation of customers, particularly in consumer channels, and the Company’s continued reliance on significant customers; (xiii) managing franchisee relationships; (xiv) the impact of poor weather conditions and climate change and risks related to the transition to a lower-carbon economy, such as the Company's ability to successfully adopt new technology, meet market-driven demands for carbon neutral and renewable energy technology, or to comply with changes in environmental regulations or requirements, which may be more stringent and complex, impacting its manufacturing facilities and business operations as well as remediation plans and costs relating to any of its current or former locations or other sites; (xv) maintaining or improving production rates in the Company's manufacturing facilities, responding to significant changes in customer preferences or expectations, product demand and fulfilling demand for new and existing products, and learning, adapting and integrating new technologies into products, services and processes; (xvi) changes in the competitive landscape in the Company's markets; (xvii) the Company's non-U.S. operations, including sales to non-U.S. customers; (xviii) the impact from demand changes within world-wide markets associated with homebuilding and remodeling; (xix) potential adverse developments in new or pending litigation and/or government investigations; (xx) the incurrence of debt and changes in the Company's ability to obtain debt on commercially reasonable terms and at competitive rates; (xxi) substantial pension and other postretirement benefit obligations; (xxii) potential regulatory liabilities, including environmental, privacy, data breach, workers compensation and product liabilities; (xxiii) attracting, developing and retaining senior management and other key employees, managing a workforce in many jurisdictions, labor shortages, work stoppages or other labor disruptions; (xxiv) the Company's ability to keep abreast with the pace of technological change; (xxv) changes in accounting estimates; (xxvi) the Company’s ability to protect its intellectual property rights and to maintain its public reputation and the strength of its brands; and (xxvii) the Company’s ability to implement, and achieve the expected benefits (including cost savings and reduction in working capital) from, its Global Cost Reduction Program including: continuing to advance innovation, electrification and global market penetration to achieve organic revenue growth of 2-3 times the market; streamlining and simplifying the organization, and investing in initiatives that more directly impact the Company's customers and end users; returning adjusted gross margins to historical 35%+ levels by accelerating the supply chain transformation to leverage strategic sourcing, drive operational excellence, rationalize manufacturing and distribution networks, including

consolidating facilities and optimizing the distribution network, and reduce complexity of the product portfolio; improving fill rates and matching inventory with customer demand; prioritizing cash flow generation and inventory optimization; executing the SBD Operating Model to deliver operational excellence through efficiency, simplified organizational design; and reducing complexity through platforming products and implementing initiatives to drive a SKU reduction.

Additional factors that could cause actual results to differ materially from forward-looking statements are set forth in the Annual Report on Form 10-K and in this Quarterly Report on Form 10-Q, including under the headings “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in the Consolidated Financial Statements and the related Notes.

Forward-looking statements in this Quarterly Report on Form 10-Q speak only as of the date hereof, and forward-looking statements in documents that are incorporated by reference herein speak only as of the date of those documents. The Company does not undertake any obligation or intention to update or revise any forward-looking statements, whether as a result of future events or circumstances, new information or otherwise, except as required by law.

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company’s Annual Report on Form 10-K for the year ended December 30, 2023 and its Quarterly Report on Form 10-Q for the quarter ended March 30, 2024 include "Legal Proceedings" under Item 3 of Part I and Item 1 of Part II, respectively. Other than as described below, there have been no material changes from the legal proceedings described in the Company's Forms 10-K and 10-Q.

Government Investigations

On January 19, 2024, the Company was notified by the Compliance and Field Operations Division (the “Division”) of the Consumer Product Safety Commission (“CPSC”) that the Division intends to recommend the imposition of a civil penalty of approximately $32 million for alleged untimely reporting in relation to certain utility bars and miter saws that were subject to voluntary recalls in September 2019 and March 2022, respectively. The Company believes there are defenses to the Division’s claims, and has presented its defenses in a meeting with the Division on February 29, 2024 and in a written submission dated March 29, 2024. On April 1, 2024, the Division informed the Company's counsel that the Division intended to recommend that the CPSC refer the matter to the U.S. Department of Justice (the “DOJ”). On May 1, 2024, the Company was informed that the CPSC voted to refer the matter to the DOJ. The Company has not heard anything further from the CPSC or the DOJ in relation to this matter since then and therefore is not in a position to assess the likelihood of any potential loss or adverse effect on its financial condition or to estimate the amount of potential loss, if any, from this matter.

As previously disclosed, the Company has identified certain transactions relating to its international operations that may raise compliance questions under the U.S. Foreign Corrupt Practices Act ("FCPA") and has voluntarily disclosed this information to the DOJ and the U.S. Securities and Exchange Commission (the “SEC”). The Company is cooperating with both agencies in their investigations of these transactions (the “FCPA Matters”). Currently, the Company does not believe that the FCPA Matters will have a material impact on its financial condition or results of operations, although it is possible that a loss related to the FCPA Matters may be incurred.

Given the ongoing nature of the FCPA Matters, management cannot predict the duration, scope, or outcome of the DOJ’s or SEC’s investigations or estimate the potential magnitude of any such loss or range of loss, or the cost of the ongoing investigations. Any determination that certain transactions relating to the Company’s international operations were not in compliance with the FCPA could result in the imposition of fines, civil or criminal penalties, equitable remedies, including disgorgement, injunctive relief, or other sanctions against the Company. The Company also may become a party to litigation or other legal proceedings over the FCPA Matters described above.

The Company is committed to upholding the highest standards of corporate governance and is continuously focused on ensuring the effectiveness of its policies, procedures, and controls. The Company is in the process, with the assistance of professional advisors, of reviewing and further enhancing relevant policies, procedures, and controls.

Other Actions

In addition to the matters above, in the normal course of business, the Company is involved in various lawsuits and claims, including product liability, environmental, intellectual property, contract and commercial, advertising, employment and distributor claims, and administrative proceedings. The Company does not expect that the resolution of these matters occurring in the normal course of business will have a materially adverse effect on the Company’s consolidated financial position, results of operations or liquidity.

There have been no material changes to the risk factors as disclosed in the Company’s Form 10-K for the year ended December 30, 2023 filed with the Securities and Exchange Commission on February 27, 2024.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

The following table provides information about the Company’s purchases of equity securities that are registered by the Company pursuant to Section 12 of the Exchange Act during the three months ended June 29, 2024:

(a)On April 21, 2022, the Board approved a share repurchase program of up to 20 million shares of the Company’s common stock (the “April 2022 Program”). The April 2022 Program does not have an expiration date. The Company may repurchase shares under the April 2022 Program through open market purchases, privately negotiated transactions or share repurchase programs, including one or more accelerated share repurchase programs (under which an initial payment for the entire repurchase amount may be made at the inception of the program). Such repurchases may be funded from cash on hand, short-term borrowings or other sources of cash at the Company’s discretion, and the Company is under no obligation to repurchase any shares pursuant to the repurchase program. The currently authorized shares available for repurchase under the April 2022 Program do not include approximately 3.6 million shares reserved and authorized for purchase under the Company’s approved repurchase program in place prior to the April 2022 Program relating to a forward share purchase contract entered into in March 2015.

During the three months ended June 29, 2024, no director or Section 16 officer of the Company adopted, modified or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.