Stanley Black & Decker Q1 2024 Earnings Call Transcript

AlphaStreet
Provided by AlphaStreet
May 2, 2024
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Operator

Welcome to the First Quarter 2024 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 the 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.

Dennis Lange
Vice President, Investor Relations at Stanley Black & Decker

Thank you, Shannon. Good morning, everyone, and thanks for joining us for Stanley Black & Decker 2024 first quarter webcast. Here today, in addition to myself, is Don Allan, President and CEO; Chris Nelson, COO, EVP and President of Tools & Outdoor; And Pat Hallinan, EVP and CFO.

Our earnings release, which was issued earlier this morning, and a supplemental presentation, which we will refer to, are available on the IR section of our website. A replay of this morning's webcast will also be available beginning at 11 a.m. today.

This morning, Don, Chris and Pat will review our 2024 first quarter results and various other matters, followed by a Q&A session. Consistent with prior webcasts, we are going to be sticking with just one question per caller.

And as we normally do, we will be making some forward-looking statements during the call based on our current views. 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 in our most recent 34 Act filing.

I'll now turn the call over to our president and CEO, Don Allan.

Don Allan
President and Chief Executive Officer at Stanley Black & Decker

Thank you. Dennis, and good morning, everyone. Our first quarter performance was the result of consistent, solid execution, and we are making progress against key operational objectives. We continue to see significant value creation opportunities tied to our strategic business transformation, and the entire company is focused on the disciplined execution of this strategy. We are encouraged by the momentum that is building across the organization. Two of our primary areas of emphasis are free cash flow generation and gross margin expansion. We are focused on what is within our control and are pleased with the momentum behind our gross margin. This is particularly notable considering a significantly worse, negative macro environment. And corresponding revenue performance in 2023 and 24 versus our initial expectations at the outset of our transformation in mid-2022.

Our global cost reduction program remains on track for expected run rate savings of $1.5 billion by the end of 2024 and $2 billion by the end of 2025. As we hit the halfway point of our journey, our decisive actions are delivering quantifiable results. Specifically, we have captured $1.2 billion of run rate savings program to date. We remain confident this will support 30% gross margins in 2024 consistent with our guidance. We are encouraged that approximately 80% of the company's revenue is expected to carry 2024 adjusted gross margins in excess of 30% and exit this year at or ahead of initial expectation.

We believe these product lines will continue to improve upon their current adjusted gross margin profiles over the next 18 to 24 months. As it relates to the rest of the portfolio, or that 20%, which is predominantly our cyclically depressed outdoor business and the rapidly recovering aerospace fastener business. We are actioning significant cost efficiencies to make necessary improvements to the profitability of outdoor in response to the current market demand and refining the aerospace fastener product line cost base to drive significant growth leverage as widebody plane production continues to recover. Our longterm success will be driven by improved profitability coupled with consistent market share gains. We believe our share position and tools is now stable to increasing.

For example, our 2023 point-of-sale data and tools perform better than the category average across the North American home centers, which was led by our iconic DEWALT professional brand. We are also serving our customers better by delivering improved fill rates, earning the right for more activity across our brands. Retailers are recognizing this performance. For 2023 Ace Hardware named CRAFTSMAN is Vendor of the Year. And Granger recognized Stanley Black & Decker with their Partner in Performance award.

Congratulations to our organization. This is a testament to the team's efforts, and as we work to get closer to our partners. It's an early indication that we are on the right track. As we reported our first quarter performance, we are energized by how our transformation efforts are taking root. I am confident that by executing our strategy, we are positioning the company to deliver high levels of organic revenue growth, profitability, and cash flow to drive strong long term shareholder return.

Turning to the first quarter results, our top line showed signs of stabilization, with organic revenues down a point. Excluding the now divested infrastructure business, organic revenue was flat as Engineered Fastening and DEWALT growth was offset by muted consumer and DIY demand. Adjusted gross margin was 29% of 590 basis points versus the first quarter of last year and 30 basis points above the second half of 2023. Adjusted diluted earnings per share was $0.56. Adjusted gross margin expansion and EPS growth were both supported by lower inventory destocking costs, supply chain transformation benefits and reduced shipping costs.

We are reiterating our 2024 full year adjusted diluted EPS guidance range of $3.50 up to $4.50, as well as our expected free cash flow of $600 million to $800 million. Pat will provide more color on this later in our presentation. On April 1, we completed the sale of STANLEY Infrastructure Eprioc. We have already deployed net proceeds from the transaction to reduce short-term debt, demonstrating our commitment to further strengthening our balance sheet.

Looking forward in 2024, we expect mixed demand trends to persist across our businesses, and we are driving supply chain cost improvements to expand margins, deliver earnings growth and generate strong cash flow. At the same time, we are funding investments designed to fuel targeted long-term growth and market share gains across our businesses. I want to thank our team members around the world for their contributions to the progress that we have made on our transformation journey. And further energy and focus as we continue to charge forward.

I will now pass it to Chris Nelson to review the business segment performance.

Chris Nelson
COO, EVP and President, Tools & Outdoor at Stanley Black & Decker

Thank you, Don, and good morning, everyone. Beginning with Tools & Outdoor, first quarter revenue was approximately $3.3 billion, down 1% organically versus prior year as growth in DEWALT was more than offset by muted consumer and DIY demand, which pressured volume. Pricing was relatively flat, consistent with our expectations. Adjusted segment margin was 8.5% in the first quarter, a 550 basis point improvement compared to the first quarter of 2023. This was achieved through lower inventory destocking costs, supply chain transformation savings and shipping cost reductions, which were partially offset with targeted investments designed to accelerate share gain and organic growth.

Now, turning to the product lines. Power tools was up 1 point organically led by pro-driven growth DEWALT and international sales. We are also seeing benefits from a return to historic promotional levels on high margin DEWALT cordless. Organic revenue for hand tools declined 7% pressured by lower DIY demand. Outdoor product line organic revenue grew 2% in the quarter, driven by strong demand for handheld cordless outdoor power equipment and incremental retail product listings.

We are encouraged by U.S. retail point-of-sale data, which showed an early start to the season versus prior year. We are cautiously optimistic that demand can be better than the last two years. Our visibility will improve as we move through the second quarter and hit key U S. holidays. The independent dealer channel continues to work through significant on-hand inventory, which pressured shipments in the quarter. We are monitoring POS trends in this channel and currently expect that they can clear their inventory during the 2024 season to set up a stronger 2025.

As Don alluded earlier, the outdoor market remains soft versus 2019 volume levels. We are not standing still and are moving with speed to improve profitability by continuing to optimize our cost structure. Consistent with our overall strategy, our intent is to focus resources towards capturing targeted share gain opportunities in the most profitable and attractive growth segments such as electric handheld outdoor power equipment.

Turning to Tools & Outdoor performance by region. North America is down 2% organically driven by factors consistent with the overall segment. In Europe, organic revenue was down 3% as declines in France and Germany were partially offset by growth in the Nordics and the U.K. We are making targeted investments in the region to expand professional product offerings and activate these innovations in the market to capture share. In aggregate, all other regions were up 7% organically in the quarter, driven by mid-teens growth in Latin America. Brazil, Mexico, Central America and the Caribbean led this performance for the quarter.

In summary, for Tools & Outdoor, we are acutely focused on successfully winning with our customers and winning with the pro while making profitability improvements. We are navigating mixed market conditions with the goal to capitalize on the areas of strength. We are making deliberate investments in our brands. Market activation and innovation to capture the growth and margin opportunities that will contribute to long-term shareholder returns.

I will now discuss our Industrial segment performance. First quarter Industrial revenue declined 5% versus last year. Price realization of 1% across the segment and Engineered Fastening volume growth was more than offset by Infrastructure volume declines and a point of currency pressure. Within the Industrial segment, Engineered Fastening organic revenue growth of 5% includes aerospace growth of 30% and auto growth of 4%. We believe we are outpacing customer production levels as a result of targeted share gains, particularly in EV automotive.

This growth was partially offset by market softness in general industrial fasting. Industrial's adjusted segment margin was 12.1% and improvement of 110 basis points versus prior year, driven by price realization and cost actions taken to improve productivity. This was a strong performance considering the infrastructure volume decline that the team faced. The quarter was a result of focused execution by our industrial business associates. On behalf of the entire leadership team, I'd like to thank our colleagues around the world for delivering another solid quarter of results and a strong start to the year.

Now, turning to the next slide, I would like to now highlight a few of our recent DEWALT product introductions, which are the results of our investments in innovation. The new DEWALT 20V MAX XR Cordless Framing Nailer is engineered for enhanced productivity and performs applications that are traditionally served by pneumatic tools. It is designed to allow the end user to sync framing nails consistently subflush into LVL material. And when used in rapid sequential mode, ramp up time is eliminated between shots. DEWALT is also introducing the world's 1st 20V Max Cordless, 2 1/4 peak horsepower dedicated Plunge Router. It provides power like a corded midsize router with the convenience of a cordless tool. A prime example of how we continue to help our pro users transition to a cordless job site.

Additionally, our TOUGHSYSTEM 2.0 DXL Workstation is the industry's first portable storage solution with a 30-inch platform that helps pros to maximize their productivity. This all-in-one workstation delivers customizable mobile storage and a functional worktop that is unlike anything else currently available for commercial construction job sites. These are just a few examples of how we continue driving our innovation engine in a manner that is centered on the professional with the intent of making our users more productive.

We believe these innovations, coupled with our investments in brand and market activation will stimulate share gain. As we celebrate the DEWALT 100 year anniversary, we also reflect on our responsibility and commitment to serving the tradespeople around the world with brands like DEWALT, CRAFTSMAN and STANLEY.

Thank you. And I'll now pass the call over to Pat Hallinan.

Pat Hallinan
Executive Vice President, CFO at Stanley Black & Decker

Thanks, Chris, and good morning.

Turning to the next slide, I would like to highlight the progress we've made along our transformation journey in the first quarter. We achieved approximately 145 million pre-tax run rate cost savings in the period bringing our aggregate savings to approximately $1.2 billion since program inception. As we focus our portfolio, streamline our business structure and transform our operations our teams are actively identifying and prioritizing opportunities to further optimize our cost structure.

Given the dynamic macro environment we continue to refine and mobilize plans to deliver targeted savings. We are confident in our ability to execute those plans, we continue to target $1.5 billion of pre-tax run rate savings by the end of 2024 and $2 billion pre-tax run rate cost savings by the end of 2025. Strategic sourcing remains the largest contributor to our transformation savings to date. We are leveraging savings on the $5 billion of addressable spend across areas such as materials and components, finished goods and indirect expenditures.

Our operations excellence program, which leverages lean manufacturing principles is driving productivity improvements. The scope of this work stream improves efficiency and effectiveness within our production and distribution facilities. A pipeline of projects is robust with initiatives lined up to deliver efficiency gains in 2024 and beyond. Footprint-related projects and product platforming, which are more event-driven, will become increasingly important throughout the remainder of our transformation. We are optimizing our distribution footprint, as well as redesigning our manufacturing network to leverage centers of excellence and to optimize our operations. This multiyear endeavor is accelerating in 2024 as we plan to exit or transform a number of facilities across the globe during 2024 and 2025.

The manufacturing sites we previously announced for closure have ceased production and we expect to exit these sites in the near future. We continued to execute manufacturing footprint changes during the first quarter, which affected five sites with the goal to complete these site modifications this year. Regarding product platforming, this initiative will unlock value by reducing complexity across our value chain. This savings initiative identifies various parts and components that can be standardized across a product family, which eliminates complexity and improves procurement scale.

In aggregate, our supply chain transformation initiatives are expected to generate approximately $0.5 billion of savings in 2024, improving margins and generating resources for additional growth investments in our core business. We remain confident that our transformation can support the sustainable cost structure and efficiency needed to return our adjusted gross margin to 35% or greater while enabling targeted growth investments.

Moving to the next slide. We continue prioritizing free cash flow generation and gross margin expansion to support long-term growth and value creation. First quarter free cash outflow was in line with typical historical trends due to seasonal account receivable increases. This quarter, our inventory control contained the working capital build to approximately $360 million where we've traditionally averaged a roughly $700 million increase in the first quarter of the year. Days of inventory is now approximately 150 days, and improvement of 10 days versus the prior year and moving toward our long-term target of approximately 120 days to 130 days.

We use the net proceeds from the infrastructure sale to reduce our commercial paper balance in the beginning of the second quarter. Because this occurred subsequent to the first quarter close, it is not reflected in the first quarter balance sheet. We remain focused on working capital optimization and profitability improvement to generate strong, free cash flow in 2024. For the full year 2024, we plan to reduce inventory by $400 million to $500 million as we continue prioritizing working capital efficiency. Capex is expected to range between $400 million to $500 million, which includes support for the footprint-related transformation initiatives. These items, combined with organic cash generation support our full year free cash flow range of $600 million to $800 million, which is unchanged from our guidance communicated earlier in the year.

Our capital deployment priorities remain consistent, investing in organic growth and our transformation. Funding our longstanding commitment to return value to shareholders through cash dividends and further strengthening our balance sheet.

Turning to profitability. Adjusted gross margin of 29% in the first quarter improved 590 basis points versus prior year, driven by lower inventory destocking costs, supply chain transformation benefits and lower shipping cost. We expect to increase adjusted gross margin sequentially in each half of 2024. And we are planning for total company adjusted gross margin to approximate 30% for the full year. We continue to expect to exit the year at an adjusted gross margin rate in the low 30s. We are off to a solid start in 2024, and the hard work we've done to make adjusted gross margin progress allows us to fund incremental investments to accelerate long-term organic revenue growth.

Now, turning to the 2024 guidance and the remaining key assumptions. In addition to the free cash flow guidance I just covered, we are reiterating GAAP earnings per share range of a $1.60 to $2.85, and an adjusted earnings per share range of $3.50 to $4.50 we are maintaining the range of organic revenue assumptions to be plus or minus low single digits. We believe the most likely outcome for organic revenue is to be flat to down 1%. At this level, we expect to achieve the midpoint of our adjusted EPS range through cost controls. Our view incorporates modest headwinds in aggregate for our markets, and we remain focused on gaining share in this environment. We are maintaining a disciplined approach to cost management and remain committed to funding investments for long-term organic growth.

Turning to the segments, Tools & Outdoor organic revenue is expected to be plus or minus low single digits, most likely below flat. Consistent with the total company, the industrial segment, organic revenue is expected to be relatively flat to slightly positive. Infrastructures first quarter decline will impact the segment's full year organic growth. And now that the deal is closed. We will report the divestiture revenue impact quarterly. Our planning assumption for growth investments is approximately an incremental $100 million in 2024. These are designed to accelerate innovation, market activation, and to support our powerful DEWALT, CRAFTSMAN and STANLEY brands. This should result in 2024 SG&A as a percentage of sales in the mid-21% zone for the full year. We will remain agile with the pace of investments should the demand outlook swing in or out of our favor.

Turning to profitability. We expect total company adjusted EBITDA margin to approximate 10% for the full year, supported by the benefits of the transformation program. Segment margin and Tools & Outdoor is planned to be up year-over-year, also driven by continued momentum from our ongoing strategic transformation. The industrial segment margin is expected to be flat to slightly positive versus prior year as operating improvement in Engineered Fastening is offset by the dilution from the infrastructure business divestiture. Our adjusted EPS range remains $1, with variability in market demand being the largest contributor. We will work to optimize adjusted gross margin and manage SG&A thoughtfully throughout the year to balance the macro uncertainty while working hard to preserve investments to position the business for longer term growth.

Turning to other elements of guidance. GAAP earnings include pre-tax non-GAAP adjustments ranging from $290 million to $340 million largely relating to the supply chain transformation program with approximately 25% of these expenses being noncash footprint rationalization costs. Our adjusted tax-rate is expected to be 10% for 2024 with the second and third quarters in the low 30s. Discrete tax planning items are expected to reduce the full year rate and primarily impact the fourth quarter. Other 2024 guidance assumptions at the midpoint are noted on the slide to assist with modeling. We expect a second quarter adjusted earnings per share to be approximately 21% to 22% of the full year at the midpoint. Adjusted EBITDA for the second quarter as a percentage of the full year is expected to exceed 25%, with EPS contribution lower due to the quarterly tax profile.

In summary, we continue to make progress on our transformation journey with an unwavering focus on gross margin expansion, cash generation, balance sheet strength, and share gains in a soft market. We are confident that successful execution of our strategy can position the company for long-term growth and value creation.

With that, I will now pass the call back to Don.

Don Allan
President and Chief Executive Officer at Stanley Black & Decker

Thank you, Pat. As we report another quarter of progress, our consistent execution against our plan is building momentum and energizing our team. As our profitability continues to improve, we are focusing organic growth investments behind our most powerful brands, particularly DEWALT, CRAFTSMAN and STANLEY. We believe these investments can enable organic growth to outpace the market by two to three times. Stanley Black & Decker continues to become a more streamlined business built on the strength of our people and culture, with an intensified emphasis on our core market, leadership positions in Tools & Outdoor and Engineered Fastening.

We are focused on consistent execution while positioning the company to deliver higher levels of sustainable organic revenue growth, profitability and cash flow to drive strong long-term shareholder return.

With that, we are now ready for Q&A, Dennis.

Dennis Lange
Vice President, Investor Relations at Stanley Black & Decker

Great. Thanks, Don. Shannon, we can now start the Q&A, please. Thank you.

Skip to Participants
Operator

Thank you. [Operator Instructions]. Our first question is from the line of Julian Mitchell of Barclays. Your line is now open.

Julian Mitchell
Analyst at Barclays

Hi. Good morning. Maybe --

Don Allan
President and Chief Executive Officer at Stanley Black & Decker

Good morning.

Julian Mitchell
Analyst at Barclays

Maybe just my question would be around the second quarter, just homing in on that a little bit. One respect, I guess, just to make sure. Based on the seasonality comment and I think the low 30s tax rate are we sort of thinking it's flattish sequential revenue in Q2 and then a kind of 9% operating margin. Just wanted to make sure that's the broad assumption and to check what you're assuming for outdoor. And also for Q2, how are we thinking about free cash? Is that sort of flattish year-on-year? Or still down year-on-year, like in Q1. Thank you.

Don Allan
President and Chief Executive Officer at Stanley Black & Decker

Yeah, Julian. I'll try to unpack all those, see if I can remember them. I think you started with sales. I think sales will be flat to slightly down, fractionally down. I don't think, there'll be, you know, the first quarter was down about a point. It probably won't be that steep. And your OM margin of 9-ish percent. You're in the zip code. I think the first half of the year seems to be playing out in a manner. That's consistent broadly with the consensus from our original guide. And so I think that's all in the zip code. In terms of cash? Yes, I think cash will be up -- flat to slightly up for the quarter. What I'd remind everybody about cash is this year, our cash output is going to be driven differently than last year. Last year, we took out a billion plus of inventory, and that was a massive driver of 23 cash flow. We'll still be using inventory to drive cash flow this year, but it'll be more like 400 to 500 million. And then income expansion through margin expansion will drive the balance. And so we'll have the producers of cash this year be roughly the same order of magnitude but disproportionately driven by operating profits this year.

And so obviously those operating profits are going to flow the way the quarterly revenue and the margin expansion flows. And so I think that's what's being observed here in the first quarter is we had a really nice organic cash flow in the first quarter. But we had, as expected, less inventory reduction, and that's the net delta year-over-year in the first quarter, but I think it'll be more like flat to slightly up when we get to the second quarter versus last year.

In terms of outdoor. As Chris mentioned in his comments, we've seen a more traditional timing in order of magnitude start to the outdoor season which is certainly welcome and we hope carries throughout. But it's early in the season and we'll see where that plays out through the balance of the season. But coming off of two pretty tough seasons, we would welcome that. And so obviously, if that continued, that would put outdoor on a growth trajectory.

Operator

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

Tim Wojs
Analyst at Robert W. Baird

Hey, everybody. Good morning.

Don Allan
President and Chief Executive Officer at Stanley Black & Decker

Morning.

Tim Wojs
Analyst at Robert W. Baird

I was just hoping maybe you could expand a little bit on the DEWALT growth, just maybe some color on the underlying drivers of growth there. Just whether it's kind of organic, user kind of growth and expansion, or just inventory availability or outdoor. Just some color there. And maybe the sustainability of the growth trajectory. And then maybe, just as you think about SG&A reinvestment this year, just how much are you specifically looking at kind of reinvesting that into DEWALT specifically versus some of the other brands?

Chris Nelson
COO, EVP and President, Tools & Outdoor at Stanley Black & Decker

Well, thanks a lot, Tim. This is Chris. So, first of all, I'd say that we are encouraged by what we're seeing from DEWALT on the growth side. And it was something that has been a continued bright spot in the portfolio, and we expected to continue to gather momentum. If I would think about where the sources of growth are coming from, I would say that first and foremost, the progress that we've made as a part of our supply chain transformation and allowing higher fill levels and service rates for our customers is certainly driving more momentum there.

Secondarily, I think if we think about the ongoing sustainability and trajectory of that growth. As we have been pivoting our dollars and investments into more of the pro-driven end user not only product development, but also engagement in the marketplace and really highlighting the DEWALT brand. I think that that is something that we see as a long-term sustainable trend and actually something that we're going to continue to put a lot of those investments into.

And while I'll turn it over to Pat, for the specifics. What I'd say as far as the investments in where they're going. Really, if you think about it, the majority of it is going into development -- product development and activation, where we're saying we want to be making sure that we're developing the innovative products for our professional end users, specifically driving a lot of innovation in DEWALT. And then also having a significant amount of that investment going into activation resources that can work with our end users. And our partners in the field to make sure that they are able to understand, launch and drive the success of those products as well. So we feel very good about the sustainability and we're encouraged by the progress we're making with this -- with the way that we're prioritizing here. I don't know, Pat, if you wanted to add anything there.

Pat Hallinan
Executive Vice President, CFO at Stanley Black & Decker

Yeah, I mean, I think in terms of SG&A for the year, Tim, I think is 21% in kind of the middle fractions 21.5%-ish plus or minus 20 basis points is kind of where SG&A is for the year. And as our opening comments mentioned, that's about 100 million of incremental investment. I'd say 60 to 70 of that in the Tools & Outdoor business. As Chris mentioned, a lot of that is on innovation, and therefore a healthy portion of that goes to DEWALT. And a lot of it is on field activation. And so again, because DEWALT is the biggest brand out in the field, a lot of that ends up going to DEWALT.

Operator

Thank you. Our next question comes from the line of Jeffrey Sprague with Vertical Research Partners. Your line is now open.

Jeffrey Sprague
Analyst at Vertical Research Partners

Hey. Thank you. Good morning, everyone. Big picture question for Don, and then maybe just some loose ends for Pat, but first, just -- sorry if I missed it at the beginning, but the after-tax proceeds on infrastructure. And then Pat also can you just address what that other was in cash outflow of $250 million-ish in the quarter? And Don. Just wondering if you could speak maybe to the portfolio now more broadly with infrastructure done as kind of the portfolio simplification in your view, behind the company now, and we're focused on these operational elements that remain central to the margin improvement plan? Or are there other things that maybe could happen here as you chart the path forward?

Don Allan
President and Chief Executive Officer at Stanley Black & Decker

Sure, Jeff. Pat, maybe you take those questions.

Pat Hallinan
Executive Vice President, CFO at Stanley Black & Decker

Yeah.

Don Allan
President and Chief Executive Officer at Stanley Black & Decker

And I'll answer Jeff's second question.

Pat Hallinan
Executive Vice President, CFO at Stanley Black & Decker

Jeff, the after-tax proceeds on the infrastructure deal. I'd say the pre-tax are in the two or 730-ish range. 730-ish? I think it's 729 at a fraction. And the tax impact to that will be de minimis, probably in the 10 or less range when it's all said and done. And that all went down to pay the commercial paper balance down. And that all happened in the front of the second quarter. Therefore, it's in the second quarter financials that you'll see 90 days down the road.

In terms of other cash outflows that is driven by, let's say, two things predominantly. There's many things in that bucket. One is a return to normal MICP or annual compensation, variable compensation payments which go out in the first quarter. You can imagine 2022 was very, very low by traditional standards, and so the payout for '22 that happened in '23 was very low by traditional standards. And the payout, that happened in the first quarter of this year for '23 was kind of back to normal standards, and then cash taxes. Those are the two big drivers of that outflow in the other bucket.

Don Allan
President and Chief Executive Officer at Stanley Black & Decker

Thanks, Pat. On the portfolio question as we all know, we've done a fair amount of work of pruning the portfolio of businesses here at Stanley Black & Decker, in particular, the Security segment, which had two businesses. And then in industrial, we've done some things related to not only infrastructure, but oil and gas a little while back as well. We will continue to evaluate other things to prune going forward based on value creation opportunities. I think we've gotten ourselves down to a place where we have some very high quality assets in our portfolio. And there's not an urgent need to do anything at this stage.

As we look at the portfolio going forward, there will be more opportunities likely in the next 18 to 24 months to do a little bit more pruning. Some of it could actually be in Tools & Outdoor. As we put more and more emphasis on the three big brands that Chris has talked about in a couple of different settings over the last six months. And we'll look at some of the smaller assets we have and decide whether those make sense for it to be part of the portfolio over the long term. And so we will continue to be active. I think we've demonstrated over the years that winning the portfolio was something that is important to do. But you need to do it in a way that creates value for your shareholders.

Operator

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

Michael Rehaut
Analyst at J.P. Morgan

Thanks. Good morning, everyone. Thanks for taking my questions. Wanted to just kind of dial in a little bit more on how you're thinking about the demand trends playing out for the rest of the year in tools and storage. You have one key organic revenue growth down 1%. You're talking about the full year flat to maybe down a little bit as the most likely scenario. So are we to assume kind of the current trend more or less persisting through 2Q and the back half. And I'm also curious about how, you know, in the first quarter, you had the 7% drop in hand tools and storage if there was any inventory destocking or anything going on that drove that adjustment separately? If I can sneak in another one on the mid 21% SG&A if that's something where just given the backdrop and your goals around. Share games over the next couple of years if we should think about that as a sustainable rate over the next 12, 18, 24 months.

Pat Hallinan
Executive Vice President, CFO at Stanley Black & Decker

Hey, Mike, this is Pat. I'll take your kind of balance of the year revenue flows in SG&A and then I'll let Chris expand on a few things. I think as you think of year-over-year revenue for the balance of the year. I think any given quarter is going to be in that down 50 to down 200 basis points across the quarter. Probably averaging down 1-ish for the year. If I had to kind of point you in a direction for the balance of the year and any one of those quarters, the difference probably more to do with year-over-year comps in promotional activity or currency. Then, some really noteworthy demand dynamic that we're expecting to change from one quarter to the next.

I'd say in terms of the SG&A at kind of 21% and 21.5%-ish. I think that's likely where we are in a year like this, where we're being thoughtful to manage expenses across our enterprise while preserving growth, investments to still deliver profit and cash on our transformation journey. And I certainly think, as you look longer term, that could be a sustainable percentage as well. We have talked about in a number of forums over the last year or two that once we start seeing the market growth and we're a bit farther down the AGM journey, we may choose for a period of time to take that percentage to 22% or potentially even a little above 22% for a while as we invest for growth on the backs of a little more gross margin and macro demand. We're not quite there yet, so I think kind of managing in that. 21% and a fraction range for this year and for the long term is probably a decent modeling assumption. But like we said, we may choose that periods of time to go to 22% plus. We feel that there's good returns for those growth investments.

Chris Nelson
COO, EVP and President, Tools & Outdoor at Stanley Black & Decker

Yes. So if I take a step back and talk a little bit about where we see the markets from a macro perspective for the year. I think that what we're talking about is between it's a very tight range you know, up a point, down a point. And we're kind of thinking that we're trending towards. And there are specific areas that remain tepid. Specifically, if we think about -- we've talked about the challenges in the outdoor market. We're encouraged by what we're seeing early, but we haven't hit the season yet, and for really, any of our businesses. And specifically in outdoor -- and then as is widely understood, the DIY, and in some areas, general construction remains a little bit muted as well.

That being said, we do see some bright spots as we look at the professional markets and as the earlier conversation as we hone in on where we're going to really look for driving, share and investments. A lot of our opportunities are there, so we remain optimistic there. I would just say, although there are certainly scenarios that you could see some level of back half acceleration. We think it's prudent to be looking at the outlook that we discussed earlier, because really, if you think about it, a lot of our businesses are fairly interest rate sensitive, and with the current environment and how we're thinking about, what we see for residential construction as well as renovation. There certainly will be an unlock coming. I think it's just a matter of timing and we're -- we think it's prudent to be looking at more of that flattish revenue environment for those reasons.

Operator

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

Nigel Coe
Analyst at Wolfe Research

Thanks, guys. Good morning. Thanks for the question. So just want to come back to the Jeff's question on the portfolio. I'd assume that perhaps the industrial businesses were the remaining industrial businesses, the fasting businesses were trending as more noncore. It doesn't sound like that's necessarily the case. So that's my primary question. But if I could just add on to that. Just want to confirm that the infrastructure businesses are in the guide for 1Q and then the stranded costs from that -- the infrastructure businesses. Is that impacting the margin progression of the balance of the year? Is that material? Do we need to consider that?

Pat Hallinan
Executive Vice President, CFO at Stanley Black & Decker

Hey, Nigel, this is Pat. I'll take the infrastructure and then pass it back to Don on portfolio. The infrastructure sale in April was always in our guide. And so our original guide and our current guide account for a very early April sale of infrastructure, which we always assumed was going to be in our Q1 results. As a continuing operation and then out of our results, effectively from April 2nd or thereabouts on. And so, there's nothing to adjust in the guide. The guide is the guide. And we planned our cost structure this year to deal with the fact that there'd be fixed cost in the industrial business that had previously been supporting that business, and the industrial team has been doing a great job both gaining share and the remaining businesses they have, especially in auto and arrow and managing their cost structure proactively to deliver roughly flat margins on the year. Maybe slight improvement. Even though they had a sizable business depart this year.

Don Allan
President and Chief Executive Officer at Stanley Black & Decker

Yes. The question on the portfolio, Nigel, and specifically around industrial. So what we're left with after the sale of infrastructure is the Engineered Fastening business that we acquired with Black & Decker, a few other fastening businesses we acquired since then. And then, of course, CAM, the aerospace fastener business is in there as well. When we look at the different portions of that. One, there's pieces that certainly could be evaluated for the word I use, pruning. In the future, in the next 18 to 24 months. And we will continue to look at that. The overall platform of Engineered Fastening is still a very substantial portion of Stanley Black & Decker. It contributes a significant amount to the EBITDA to the cash flow of the company. And as the Tools & Outdoor portion of the business or the company continues to improve and the EBITDA continues to grow as we improve our gross margins back up to 35% or more as we get back to gaining market share and organic growth in a much more substantial way. It'll provide us more flexibility further down the road to decide ultimately what do we do with the entirety of the Engineered Fastening business.

But I think if you think about it in chunks of time in the next 18 to 24 months, there's probably opportunity to do a little pruning in industrial and then beyond 24 months it's a question of do you do something more substantial from a capital allocation point of view, time will tell.

Operator

Thank you. Our next question comes from the line of Adam Baumgarten with Zelman & Associates. Your line is now open.

Adam Baumgarten
Analyst at Zelman & Associates

Hey, good morning, everyone. Just a question on the POS, what you saw throughout the quarter and into April at this point?

Don Allan
President and Chief Executive Officer at Stanley Black & Decker

So POS was, I'd say, in Q1, it was negative, but in line with our plan -- are largely in line with our plan. And we remain fairly confident in supporting the outlook that we have for the balance of the year as noted. We have seen some progress in pickup with a little bit earlier start to the season. From the outdoor perspective that, as of late, has given a little bit more strength as POS and what we're trying to see now is how much of that carries through and how that continues to ramp up as we get further into the season. But the highlight would be that we're fairly in line with projections from what we're seeing with POS and we're encouraged with the areas of progress we're seeing from some nice movement on growth with some of our key brands.

Operator

Thank you. Our next question comes from the line of Joe O'Dea with Wells Fargo. Your line is now open.

Joe O'Dea
Analyst at Wells Fargo & Company

Hi. Good morning. Thanks for taking my question. Just wanted to ask on outdoor and as you see a more traditional start to the season, just. Any context on how you're thinking about 2024 demand and outdoor relative to 2019? Trying to understand whether this is a return to a more normal demand environment. And then also thinking about what a normal environment means for outdoor margins relative to where we are today to appreciate how much margin upside there could be there on just volume coming back.

Don Allan
President and Chief Executive Officer at Stanley Black & Decker

Yeah. So there's a lot of good questions in there related to the outdoor business. And the comments around the margin, the -- I would say that, in my presentation, we talked about 80% of the company being above kind of line average right now, at or above. And the other 20%, which is really made up of outdoor and CAM or Aerospace Fasteners. The outdoor portion of the business? Yes. It is below line average. But there's an opportunity to do a couple of things. One, right now, we're really adjusting the cost pace for the new demand environment of what we've experienced over the last 12 to 15 months and dramatically lower demand and outdoor. That's taking place over the next quarter or two.

The second phase of this will really be looking at some of the pruning activities that I described what portions of the business do we want to be and which portions do we not want to be in. We think there's a path to continue to improve the profitability of outdoor, and that's something we'll continue to focus on over the coming quarters and into next year. As far as the more detailed questions, I know Pat or Chris, if you want to grab that.

Pat Hallinan
Executive Vice President, CFO at Stanley Black & Decker

Yeah, I'd say. On the volume, this year is certainly still going to be down substantially versus 2019. Even if the shape of the trend line starts and starts to look more like a normal trend line, the absolute volume and dollars will be down substantially from 2019. And I would still say that most likely next year would be below 2019 as well, but starting to recover. Into Don's comment, the big headwind in this business has been the volume retrenching more than we would have anticipated a year or two ago. And so a lot of our actions are both around the fixed cost base and then what we can do with product cost structure to drive profit improvement in that business.

Operator

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

Nicole DeBlase
Analyst at Deutsche Bank Aktiengesellschaft

Yeah. Thanks. Good morning, guys.

Don Allan
President and Chief Executive Officer at Stanley Black & Decker

Morning. Hi.

Nicole DeBlase
Analyst at Deutsche Bank Aktiengesellschaft

Maybe just focusing on pricing a little bit. I think the original expectation was for a price to be kind of slightly negative in Tools & Outdoor in the first half, and it looked like maybe it came in a bit better than not in the quarter. So can you just talk about the expectation for price for the rest of the year, as well as what you guys are seeing from a competitive perspective? Thank you.

Chris Nelson
COO, EVP and President, Tools & Outdoor at Stanley Black & Decker

Yes, this is Chris. Nicole, I'd say overall. What we're looking at for the year is price cost neutral. And if we look at all the --we try to sum up all the basket of goods and input costs we have, I'd say that we're looking at would be what would be a very mildly inflationary environment. But we're going to be price cost neutral in that environment. And as I take a little bit of a broader lens on that from a price cost perspective, I think it's important to remember that we had a pretty unique set of circumstances in 2022 where we were really hitting the peak of some historically high inflationary environments as and those impasse were going up significantly as our volume was peaking and starting to retrench. So if I take a broader look and a longer duration we've still kind of only recouped 85-ish% of that overall cost that we've absorbed. So we're certainly working on making sure that we can improve our pricing processes to be more quickly reactive to inflationary environments, as well as more importantly, driving innovation. So that we can be putting products in there that earn because of their differentiation accretive margin rates.

And then as I think about the competitive environment that we're seeing thus far, we're seeing a stable environment. We're continuing to look at getting back to and are more back to historical promotional levels, but that's healthy. And we're looking at those promotions in some important categories to us, and specifically, we've talked about the importance of being able to be promoting our Cordless DEWALT products. So we feel comfortable where we are. And we think that the environment remains stable.

Operator

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

Rob Wertheimer
Analyst at Melius Research

Hi. I have another question on the outdoor side. I think you made positive comments on market share for DEWALT, I suppose more on the tool side. I wanted to hear how you think your position on breadth of portfolio and status of innovation etcetera on outdoor you need more investment to kind of achieve the same share gain, what you think this seat holds? And then it may be very early for the second part of the question, but any split on big ticket versus small ticket and outdoor, just budget sensitivity among your customers. Thanks.

Chris Nelson
COO, EVP and President, Tools & Outdoor at Stanley Black & Decker

So I think that we feel well-positioned with our outdoor portfolio. And I think, as I've stated, previously is what we're really wanting to do is make sure that we're driving the prioritization of our innovation dollars into the categories that we think that we have the biggest opportunity for share gain as well as that our margin accretive. And specifically, we've been really looking at growing our presence in the outdoor handheld electric market, and that's showing great lines of progress. And I would say that we're year to date, we're feeling good about where we are from a market perspective, and with some of the listings that we've picked up. We feel good about where we are trending from a share perspective as well. As far as bigger ticket versus small ticket, certainly in today's environment, we've seen that there are some levels of hesitation from the consumer and from any end user in the bigger ticket items, and we'll continue to monitor that.

But like I said earlier, we're cautiously optimistic with how the season is starting and we're going to continue. To make sure that we're driving innovation into those areas that we believe are going to be important and accretive for us in the future.

Operator

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

David McGregor
Analyst at Longbow Research

Chris. Good morning, everyone. Thanks for taking the question. I guess I just wanted to ask a question relating to the progress on supply chain transformation and specifically tariffs. And can you just talk about what's changed in your sourcing and procurement operations since the last time around on tariffs? And hypothetically, I guess if all the import tariffs that were imposed back in 2017, 2018, and all that was going on, they were all reimposed tomorrow. How much different would your total tariff expense be versus what you recorded last time around?

Chris Nelson
COO, EVP and President, Tools & Outdoor at Stanley Black & Decker

Sure. So I'll probably have a little PTSD thinking about tariffs back in 2016. But if we go, maybe do a little bit of history here. So we experienced about $300 million of tariffs back in that time frame and made substantial production moves in response to that. Which mitigated it down probably to about $100 million, maybe a little less than $100 million. And that $100 million or so was offset by price increases in the marketplace. Those tariffs are still in place today and have not changed even in the new administration or Biden administration.

As we think about potential changes in the future that could occur if there's a change in the administration in early '25. The landscape for us has changed. So back in that time frame, things that came, that were sold in the U.S., that were made in China was about 40% of the U.S. revenue. Today, it's closer to 20%, 25%. So it's substantially lower. And as we continue to drive our supply chain transformation, I mentioned on the call last quarter that we continue to build out what we call centers of excellence for manufacturing that are in different geographies around the world. Some of them will be in Asia, not necessarily in China, but in other parts of Asia, some are being built or have been built in the Americas and some in Eastern Europe, and we will continue to build upon that to try to if something changes with tariffs in '25 or beyond, we will be able to mitigate that through supply chain moves or actions.

At the same time, we likely -- if that occurs, we'd likely have to do some surgical price actions as well as another lever to address. So we continue to build on the plans of what we could do or would do as we head into '25. We've started that planning about three months ago, and we will continue to work on that. The good news is it's really embedded more into the supply chain transformation program than it is some separate activity that we're looking at.

Operator

Thank you. Our next question comes from the line of Eric Bosshard with Cleveland Research. Your line is open.

Eric Bosshard
Analyst at Cleveland Research

Thanks. A follow-up if I could hand tools down 7%. I'm just curious. A little bit more color there. And then also, as you think about where retail inventories are now and the path forward what retailers mindset is about inventories and what they're ordering relative to what they're selling.

Don Allan
President and Chief Executive Officer at Stanley Black & Decker

So I'll start with the second question first. And as far as our inventories in the retail channel, we're at -- essentially at historical levels, if not in some areas, a little bit below. So we're seeing a pretty good direct read on the correlation between what we see in POS and what we see going in from sales. And I think that's a good position to be in. And we're -- like we said we're on relatively on plan for what we're seeing from POS.

As far as hand tools, I would say that there's nothing. Nothing there's a tremendous outlier there. I would say that there are some parts in that are in the hand tools and storage business. That are to the earlier comments, some larger ticket buys, and those have been more sensitive in the short term to some of the kind of the consumer environment, but overall, we feel good about where that business is tracking good about the POS as well. And as well, the inventory levels are similar to what we've seen across the business.

Operator

Thank you. I would now like to hand the conference back over to Dennis Lange for closing remarks.

Dennis Lange
Vice President, Investor Relations at Stanley Black & Decker

Thanks, Shannon. We'd like to thank everyone again for their time and participation on the call. Obviously, just please contact me if you have any further questions. Thank you.

Operator

[Operator Closing Remarks].

Corporate Executives
  • Dennis Lange
    Vice President, Investor Relations
  • Don Allan
    President and Chief Executive Officer
  • Chris Nelson
    COO, EVP and President, Tools & Outdoor
  • Pat Hallinan
    Executive Vice President, CFO
Analysts

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