John F. Lundgren - Chairman and CEO James M. Loree - President and COO Donald Allan - SVP and CFO Gregory Waybright - Vice President Investor & Government Relations.

Nigel Coe - Morgan Stanley Timothy Wojs - Robert W. Baird & Co., Inc. Jeremie Capron - CLSA Richard Kwas - Wells Fargo Securities Patrick Murray - Credit Suisse Winifred Clark - UBS Jeffrey Sprague - Vertical Research Partners Mike Wood - Macquarie Equities Research John Coyle - Barclays Capital.

Good morning and welcome to the Q4 and Fiscal Year 2014 Stanley Black & Decker Incorporated Earnings Conference Call. My name is John. I’ll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded.

I’ll now turn the call over to Vice President of Investor and Government Relations, Greg Waybright. You may begin..

Thank you, John. Good morning, everyone, and thank you all for joining us for Stanley Black & Decker's fourth quarter 2014 conference call. On the call, in addition to myself, is John Lundgren, Chairman and CEO; Jim Loree, President and COO; and Don Allan, Senior Vice President and CFO.

Our earnings release, which was issued earlier this morning, and a supplemental presentation, which we will refer to during the call, are available on the IR section of our Web site as well as on our iPhone and iPad app. A replay of this morning's call will also be available beginning at 2 p.m. today.

The replay number and access code are in our press release. This morning, John, Jim and Don will review our fourth quarter results and various other matters, followed by a Q&A session. Consistent with prior calls, we’re going to be sticking with just one question per caller.

And as we normally do, we will be making some forward-looking statements during the call. Such statements are based on assumptions of future events that may not prove to be accurate, and as such, they involve risk and uncertainty.

It is, therefore, possible that actual results may differ materially from any forward-looking statements that we might make today. We direct you to the cautionary statements in the 8K that we filed with our press release and in our most recent '34 Act filing. I’ll now turn the call over to our Chairman and CEO, John Lundgren..

Thanks, Greg, and good morning, everybody. We’ve got a great deal to talk about this morning. So I’m going to run very quickly through the highlights. So Jim Loree and Don Allan can get into more detail and then we can jump right into the Q&A.

Looking at fourth quarter highlights, revenue expanded 7% organically led by CDIY was up 11% and strong performance in industrial up 5%. But it's also noticeable that Security expanded in the quarter with mid single-digit organic growth in North American emerging markets and flat performance in Europe.

Operating margin for the quarter was 13.7% which was up 50 basis points versus the prior year. Volume, sharp cost focus and pricing benefits were partially offset by the currency headwinds.

The currency issues that you’ve heard a lot about intensified in the fourth quarter, as we absorbed a headwind of approximately $30 million in the fourth quarter, which was $10 million worse than we expected.

And that brought the total for the year to approximately $85 million of foreign exchange headwinds, a combination of translational and transactional. The Security turnaround continues and we were encouraged that the European operating margin rate improved sequentially and versus prior year by approximately 110 basis points.

Our fourth quarter capped an encouraging year. So I'll just take a minute and look at the results for the total year, revenues up 5% organically with CDIY delivering 7%, Industrial 5%, and Security flat. Earnings per share grew 14% on an adjusted basis and now have converged with our GAAP earnings per share.

Free cash flow was a record almost $1 billion as the team delivered over one full working capital turn improvement up to the level of 9.2 working capital turns for the total Company. And our cash flow return on investment improved 390 basis points to 13% as our record cash flow coupled with our decapitalization plan improved this metric.

It’s probably important to note, Don can cover it more detail if need be, 340 of the 390 basis points of that improvement was operational where about 50 basis points of the improvement was due to the FX devaluation impact on equity. So arguably one small benefit of the foreign exchange headwind that we’ve been facing.

And finally, we’re initiating GAAP EPS guidance of $5.65 to $5.85 per share, 5% to 9% growth, absorbing foreign exchange headwinds currently estimated at $140 million for 2015 versus the $85 million I discussed in 2014.

But it also includes free cash flow estimate of at least $1 billion and Don is going to cover that in more detail when we get to the outlook. So moving on, let's take a look at where the growth came from in the fourth quarter and for the year. We achieved strong volume growth across developed and emerging markets.

Europe remains strong, particularly strong across CDIY and Industrial performed well. Pricing actions within emerging markets and surgical pricing actions across the remainder of our businesses are contributing to organic growth.

But with this being said, currency headwinds intensified as we move through the quarter and as a consequence dampened our organic growth performance by about four percentage points as the dollar strengthened against most currencies. And again, Don has got some more granularity on that, so I’ll not delve on it at this point in our presentation.

From a regional perspective, demand in the U.S was healthy in both retail and industrial. Importantly, in retail we had strong sell-in as well as strong sell-through in our retail channels. Jim will discuss that and where we stand in terms of inventories as we kick off 2015. Europe showed some exceptional share gains.

Most noticeably in CDIY, but also in industrial both within IAR and the automotive end markets, as those markets are likely tracking flat to slightly up at best. And Jim is going to talk more about the drivers of that performance.

Emerging markets were heavily influenced by strong shipments in our Engineered Fastening Electronics business in Asia, but also experienced good solid growth in our tools business in Latin America.

So when we put it all together for the full-year, our volume -- organic volume growth and performance outpaced GDP in each and every region where we do business. And that's a testament to the organic growth initiatives that we’ve discussed on previous calls.

Let me turn it over to Jim Loree to get into some more detail on the segments and some of the programs that are driving those results..

Okay. Thank you, John. Along those lines we’ve made a very determined effort over the past two years to ramp up organic growth and importantly translated into operating leverage.

So it's fulfilling to close out 2014 with a record 7% organic growth quarter, our highest full year OM rates since the Stanley Black & Decker merger and record full-year EPS and cash flow. We also, as John mentioned, achieved 9.2 working capital turns, a first for us, which contributed to a 130% cash conversion ratio for the year.

And it's especially encouraging that all this was accomplished in the face of $85 million or about little more than $0.40 a share of unplanned currency headwinds amidst a slowing global growth environment outside the U.S.

It's clear that our operating management team is executing at a high level and it’s charged up and more than prepared to continue to drive results in a challenging environment. For the business level commentary, I’ll start with CDIY, which served up another outstanding quarter. Organic growth was 11% against the 6% comp in 4Q ’13.

All major geographies contributed, with North America up 14%, Europe once again overcoming challenging end markets, up 7% organically, and emerging markets up 7%. Total revenue was also up 7% and operating margin grew 18% demonstrating impressive operating leverage.

Gains resulted from cost leveraged, modestly positive price, operations productivity, and tight SG&A cost management, which more than offset severe currency headwinds.

Across the global CDIY product lines, organic strength was once again broad-based with professional power tools up an exceptional 20% and Tools and Storage up 10%, Fastening & Accessories 7% and Consumer products up 2%.

CDIY new product development momentum in concert with a business wide commitment to commercial excellence and continued exploitation of the revenue synergies from the merger are driving both revenue and profit growth. The DeWalt DC brushless line powered by electronically commutated motors is off to a very strong start.

This fast growing category in which we enjoy a substantial lead already represents 20% of the cordless market. And putting the Company’s leading array of brands to work across categories also continues to further enhance our strong customer partnerships as well as produce favorable POS results.

Examples abound, such as DeWalt storage, adhesives and hand tools, Stanley FatMax power tools and Bostitch hand and power tools, which are all producing meaningful gains.

CDIY’s robust supply chain capabilities developed through many years of continuous improvement via the Stanley fulfillment system have continued to support its commercial successes and also enabled CDIY to achieve 10 working capital turns for the first time.

While global growth has been decelerating in most areas outside the U.S., underlying U.S tool demand remains solid as DIY fundamentals are strong and new construction markets are moving in the right direction albeit with some choppiness.

So North America once again enjoyed the benefits of combining excellent commercial execution in a market with solid fundamentals, the result being 14% organic growth at a positive share trend. Now shifting over to Europe, where the markets remain weak, but the performance continues to be impressive.

Here our team acknowledges the reality -- market realities and understands that strong growth is only possible with their commercial engine hitting on all cylinders. We call it commercial excellence. That is what they’ve accomplished over the past seven quarters, accumulating a 7% organic growth track record during that time.

And their success has derived from robust new product commercialization, brand leverage, growing customer partnerships and excellent sales in channel execution. The other CDIY growth story for the quarter was emerging markets, up 7% organically.

Notable in the face of high volatility and continued downward revision to GDP estimates, most recently in Argentina, Brazil, and Russia. Nonetheless, Latin America was up 9% organically and the Middle East Africa region was also very strong, a combination more than offsetting weakness in Russia, Turkey, and China.

Our major NPD initiative into mid price point tools across all these developing markets is coming at a time when end-user said to be more cost conscious with their purchases. The program is less tracking to plan and is expected to contribute greater than $50 million of incremental revenue in 2015 as it continues to gain momentum.

And as we look ahead for CDIY, we anticipate continued strong performance. The winning formula of organizational agility, global scale, robust NPD, great brands and tight control of costs should more than compensate for lackluster markets in Europe and some of the emerging regions as well as a strengthening dollar environment.

In this regard, with our CDIY and IAR businesses, both operating from positions of strength, after an expensive evaluation we recently took the action to combine these two businesses into one global tools and storage unit with revenues totaling about $7 billion.

While there are meaningful cost savings associated with this consolidation, the overwhelming rationale for this move is to harness the extraordinary go to market potential of our total tools franchise. This unified approach will enable us to capture the benefits and competitive advantages of being the world's largest branded tool company.

We are the only player with major positions in each of power tools, hand tools, accessories and storage, as well as significant global channel presence in all four major end markets, construction, DIY, industrial, and auto repair.

In addition, we intend to leverage the unique organizational strengths of both CDIY and IAR, including technology, product development, and global footprint across a larger base.

This exciting next step in our evolution should be viewed as a growth enhancer and a logical extension of the Stanley Black & Decker integration that has produced stellar results over the last five years or so. Now turning to Industrial.

Industrial this quarter once again logged a solid organic growth quarter, up 5% and maintained its margin in the mid 15% zone. However, FX pressures weighed down total revenue and operating margin growth, which were up 1% and flat respectively. For IAR, organic growth of 5% benefited from good performances in both developed and developing countries.

North America was up 8%, Europe was up 3% organically in the quarter, capping off a plus 7% performance for the year and IAR emerging markets came in up 5% with dynamics very similar to those experienced in CDIY.

Engineered Fastening grew an impressive 10% organically in 4Q with automotive up 11%, demonstrating market penetration gains in view of light vehicle production levels, which were up 1%.

The industrial portion of Engineered Fastening was also a good organic story with growth up at similar levels as we supported a major customer’s very strong new product launches.

We continue to love this Engineered Fastening business, which grew to $1.5 billion in revenues, produced full-year operating margin growth of 20%, and achieved a record 18% operating margin rate.

Infrastructure was down 10% organically as lower oil prices and deferral of pipeline projects begin to take their toll on our oil and gas business, which represents 3% of total company revenues. All in all, it was a solid quarter for Industrial in view of the currency issues and downward pressure on GDP outside of the U.S. Moving to Security.

It was a very important and modestly successful quarter for Security, which in addition to its third consecutive quarter of stable OM rates in the 12% zone, achieved positive organic growth with a plus 3% performance.

Total Security revenues declined 1% as FX weighed down total growth and North America emerging markets was up 5% organically with strength from both the vertical market initiative and from Access Technologies. Security Europe was flat organically for the first time since 2011, the year Niscayah was acquired, that the organic rate was not negative.

While that is admittedly comparing against the low bar, the trend is in line with our turnaround plan and that’s encouraging. Europe OM percent was up in the mid to high single-digit range, up 110 basis points versus a year-ago and representing the third consecutive sequential quarterly improvement.

Order rates in both North America and Europe continued on their positive trend and attrition in Europe remained on target at 12%. The organization has responded well to the leadership adjustments made in the fourth quarter and both North America and Europe are poised to deliver organic revenue growth and be accretive to operating margin in 2015.

While we expect the overall Security recovery to be slow and steady during the next several quarters, we do expect it to continue to gain momentum as 2015 progresses. The decision to divest Spain and Italy, previously announced, will remove structural obstacles from the European recovery.

In summary, Security has achieved stability during the last several quarters and appears to have bottomed. In this regard, it should know longer be viewed as a major downside risk, but rather as a modest earnings growth opportunity in the near-term.

The next step in the evolution is to demonstrate a sustained ability to generate organic growth, while further improving cost efficiency. This will play out over the coming quarters. And depending on the success of that trajectory, it is possible to envision OM rate expansion moving toward Company line average over time.

So while Security still have has a way to go, especially in Europe, the turnaround is on track and we expect it to become an earnings growth contributor in the very near future. With that, I’ll turn it over to Don Allan for commentary on the financials, including our 2015 outlook..

Thank you, Jim. We are very pleased with our 2014 cash flow performance, which resulted in $991 million of free cash flow, just shy of a $1 billion. The free cash flow to net income conversion ratio was a healthy 130% as you just heard from Jim.

As we experienced during the majority of 2014, our free cash flow benefited from increased operational earnings, lower restructuring payments, and reduced capital expenditures. The Q4 free cash flow was stronger than expected due to these factors combined with an outstanding working capital turn performance.

Due to certain seasonality aspects of our CDIY business, we experienced a significant positive working capital benefit in the fourth quarter of every year. As a result, we tend to generate approximately 60% of our annual free cash flow in the fourth quarter.

However, our businesses performed above and beyond this seasonality trend, and drove working capital turns to 9.2 times which is up more than a full turn versus 2013. We indicated in October that our objective was to push towards the year-end.

Our businesses did an excellent job exceeding this expectation through the continued use of the Stanley fulfillment system. It is exciting to see our long-term objective of 10 working capital turns very close on the horizon, hopefully within the next two years.

This strong cash flow performance allowed us to achieve our debt deleveraging goals for 2014 and we were able to commence the previously communicated share repurchase program in the fourth quarter through the use of some equity forward share repurchase derivatives. Now let's review our 2015 EPS and cash flow outlook on Page 10.

As indicated by John earlier, we’re establishing 2015 guidance at $5.65 to $5.85 of EPS, and free cash flow of at least $1 billion. As indicated throughout 2014 by myself, John, and Jim, we’re changing to GAAP guidance in 2015 due to the lower levels of M&A and expected one-time charges.

However, we recognize all your current 2015 estimates are before these one-time charges. Therefore to provide transparency in this conversion we had disclosed on this page that our EPS guidance range includes approximately $0.25 in restructuring charges.

On a comparable basis to our adjusted 2014 results just reported today, our EPS guidance range excluding restructuring charges is $5.90 to $6.10 EPS. Greg and Dennis will work with all of you over the next several days to ensure this conversion in guidance is clearly understood.

There are several factors within our annual guidance which we consider significant and I would like to explain in some detail. Starting with some key tailwinds. The first item is we expect organic growth to be up 3% to 4%, which will be translating into EPS of $0.45 to $0.55, which is a similar leverage ratio we’ve seen over the past few years.

The organic growth is slightly lower than the 5% organic growth we just experienced in 2014 as markets outside the U.S are likely to be challenged in 2015. Specifically, we expect emerging markets to be volatile and organic growth in many emerging countries will be muted by the strength of the U.S dollar or political unrest.

Additionally, we expect several European markets we serve to be challenged and the outside share gains we’ve achieved in CDIY over the past few years although have been fantastic, we believe it will become more difficult to repeat those on an ongoing basis. Also we do anticipate a slowdown in our oil and gas business from lower crude oil prices.

The next item related to tailwind is the execution of various cost and customer pricing actions during 2015, which will be a tailwind of approximately $0.50. The SG&A cost actions represent a further cost rationalization of certain areas in our Company.

Specifically, in the Security business we’re reducing back-office costs and overhead costs to improve profitability while at the same time we want to enhance our SG&A investments to stimulate growth within the verticals. We also have taken surgical cost actions in a few functions in other businesses and at corporate headquarters.

Additionally, as Jim mentioned, we’ve decided to combine our CDIY and IAR businesses to better serve our various tools and storage customers and further accelerate growth. This combination is generating from solid back-office cost savings as you'd expect.

All of these cost actions commenced over the past two months and will continue to be implemented in the first half of 2015 to ensure we achieve our profitability objectives. The 2015 impact of these cost actions represents approximately 50% of the $0.50 EPS tailwind.

The remaining 50% of this tailwind relates more directly to actions we can take in response to FX pressures, specifically key strategic pricing increases for products that we import into the Canadian, Brazilian, and European markets, as well as pursuing commodity deflation opportunities with many of our suppliers.

The commodity deflation we’re currently focused on is in the areas of diesel fuel, resin, and copper. However, we continue to monitor this area for other future opportunities as the year evolves. The final tailwind shown on page 10 is the continuation of the share repurchase program in 2015.

And we expect an EPS benefit to be approximately $0.09 to $0.12 during the year as the repurchase program will be staggered throughout 2015 and in line with our cash flow generation as it occurs during the year. And many of you know, a large part of our cash occurs in the back half of each year. Now shifting to headwinds.

John mentioned the FX headwind we’ve experienced in the fourth quarter, while we like many other U.S multinationals have a significant headwind for 2015 related to foreign currencies as they weakened versus the U.S dollar.

As a result, we now expect approximately $140 million of currency pressure, given the strengthening of the U.S dollar over the past 90 days. This will generate $0.70 to $0.75 EPS headwind for 2015.

I'll provide more detail insights relating to FX impacting our Company on the next slide, and more importantly, how we hedge these risks and respond to operations. A few other items of note related to annual EPS on the left side of the page you can see. First is the tax rate will be relatively consistent for 2014, which means approximately 21%.

Also I want to remind everyone to recognize the seasonality of revenue and profitability in the first quarter, as it is historically the lowest revenue and profit quarter for us. We expect the normal operating profit seasonality again this year in 2015.

However, additionally we'll expect higher levels of restructuring charges and higher levels of impacts of foreign currency in the first quarter of ’15 versus the first quarter of 2014. And specifically related to restructuring, in Q1 2015, the charges will approximate 60% of the full-year $50 million restructuring estimate.

Therefore, Q1 2015 EPS will approximate 16% of the full-year EPS. Let's turn to the right side of the page and discuss a little bit of details around our segments for 2015.

We expect mid single-digit organic revenue growth and solid operating margin rate expansion year-over-year in both the CDIY and industrial segments due to volume leverage, price actions and cost controls which will more than offset the significant currency impact. Our Security segment will have a modest organic growth number for the full-year.

The organic growth in Security North America and emerging markets will complement an improving performance in Security Europe, where we anticipate growth to begin to emerge in the second half of the year. Profitability in Security will continue to improve from volume leverage and cost actions, which will more than offset the foreign currency impact.

We expect solid year-over-year profit improvement as we continue to progress forward with our Security Europe multi-year recovery plan.

Although the currency challenges have been unrelenting and they’re causing a significant 2015 headwind, we believe we’re taking all the correct actions to combat these headwinds through our cost control actions and customer pricing initiatives, while at the same time ensuring we continue to strategically invest in organic growth.

This approach will allow us to achieve solid operating leverage and healthy organic growth, but muted total revenue growth due to FX. Specifically, earnings will expand 5% to 9% on an overall revenue outlook of flat to a decline of 1% in 2015. So moving to the next slide and a little bit of discussion on foreign currency.

As you’re all aware, U.S dollar strengthened during late September and October against the four major currencies which impact us, Canadian dollar, European euro, Brazilian real and the Argentinean peso. At the time, this created a negative currency impact of approximately $45 million to $55 million for 2015.

However, we’ve all seen the additional devaluations in most currencies versus the U.S dollar since mid November through the last several days. This included other currencies which impact us, such as the British pound, Australian dollar, Swedish krona, and Japanese yen.

We have finalized our key currency hedging activities for 2015 over the past several months based on yesterday's spot rates. We estimate that 2015 negative currency impact will approximate $140 million versus 2014 and this includes the impact of these currency hedges. The expected 2015 impact is approximately 50% translational and 50% transactional.

The transactional impact is due to our extensive global supply chains and primarily related to the importing of finished goods and components into regions such as Latin America, Europe, and Canada.

In terms of hedging, our key currencies are materially hedged and as such future volatility on our largest exposures; specifically the Canadian dollar and the European euro have been significantly reduced for the remainder of 2015.

As an example, if the euro moved to parity with the U.S dollar gradually over the next five months, we’d only expect an additional $12 million to $15 million P&L impact in 2015. Now I'd like to discuss a few things outside of hedging activities related to currencies and how we respond operationally.

We are typically prepared to take additional mitigating actions to offset significant portion -- a significant portion of these currency impacts in the following order.

First, as I just mentioned, we pursue customer price increases where large transactional FX headwinds emerged due to us importing U.S dollar based products or components into these countries or regions. The second area is we focus on improving our cost base to the pursuit of commodity deflation in this type of environment.

The third area is we look at pulling forward specific plan, cost rationalization projects for various selected businesses and functions. And then, finally we can’t lose sight of the fact that we’ve to continue to improve our localized production and component supply over the long-term.

These actions are all well represented in our 2015 guidance as significant tailwinds. All these factors are how we manage a difficult currency environment with a proactive approach that ensures we generate solid earnings growth while balancing our requirement, continuing to invest for future growth.

Now let's move to the summarize -- the summary page of our presentation. We are very pleased with our strong 2014 EPS and cash flow performance, despite significant FX pressure and emerging market volatility.

We achieved many of the objectives we established in early 2014 such as strong organic growth of 5% supported by innovation and the growth investments continue to blossom [ph]. Tight cost controls and surgical price actions across the entire Company enabled excellent operating leverage to emerge in our P&L.

Security Europe continues to perform better and made solid progress on its multi-year transformation. Debt leverage -- leveraging target -- deleveraging targets were met and we took a modest step towards our $1 billion share repurchase program in Q4.

And then we exceeded our cash flow return on investment goal and ended the year at the low-end of our long-term range of 12% to 15%.

Our focus in 2015 will continue to be on improving the near-term returns and relative performance through the organic growth initiatives, security margin improvement, cost and pricing actions, ongoing working capital focus and the continued rebalance of our capital allocation.

We believe this approach will continue to be successful in 2015 and beyond as it positions our Company to deliver on the long-term financial objectives we’ve established. This concludes the presentation portion of the call. And let’s move to Q&A..

Great. Don, thank you. John, we can now open the call to Q&A, please..

Thank you. We'll now begin the question-and-answer session. [Operator Instructions] And our first question is from Nigel Coe from Morgan Stanley. Please go ahead..

Thanks. Good morning and congratulations on your kind of growth this quarter.

Just wanted to focus on price here and -- in light of the raw material deflation, have the discussions with your key customers change in any materially way? And on top of that, given the currency move, have you seen any change in behavior from your European and Japanese competitors?.

So this is Jim. The deflation at this point is not material. It’s significant, but not material, and its spread over many, many different businesses and product lines and so forth. So, for any given skew or any given product line, it’s probably no more than a point or two of the total selling price.

And we don’t -- we don’t entertain price adjustments unless there is really material inflation, that’s when the customers will get more interested in doing that. And likewise it works the same way on the other side when we have inflation. We don’t pursue inflation based price increases with our major customers until it becomes material.

So it’s a -- there is a healthy understanding that for these types of immaterial moves that we don’t rock the boat, if you will. So that’s the kind of approach there. As long as it kind of continues at this pace, we’re looking at maybe $40 million, $50 million of deflation across a 12 -- almost a $12 billion revenue base.

And then, the second part of the question …?.

Well it was on behavior from our European and Japanese customers [indiscernible] it’s important to note where their production is. So, go ahead James..

So, if you look at Bosch and Makita everybody has global footprints with concentration in China. And most folks are using either renminbi or dollar denominated currencies to basically set purchase prices, so -- or the -- and the manufacturing costs are obviously established in those regions as well.

Now, so then you take Makita, well Makita has more Japanese manufacturing than say some of the others. Bosch has more European manufacturing than the others. So I’d say it’s probably for them some opportunity to shift some production to these areas where the currency has gone down.

But recognize that in both Japan and in Europe that the labor rates are exceptionally high relative to the emerging markets. So it really takes some pretty significant currency movements on a sustained basis to make it a practical reality for them to be able to shift a lot of manufacturing.

And we also have a fairly substantial ability to shift production into Europe with our manufacturing footprint there. We really don’t have much of a Japanese footprint at all. So, there is some movement that’s possible. I think it’s really at the margin and not really a significant impact..

Our next question is from Tim Wojs from Baird. Please go ahead..

Yes. Hi, guys. I guess, just to talk about the CDIY outperformance there. I think in the press release you talked about share gains.

I’m just curious where the share gain is coming from? Is it more shelf space at retail or is it better sell-through, is it just better product? Maybe just a little bit more color there and then maybe what's in the pipeline around sustaining that growth rate as we get into 2015?.

Yes, Tim, this is John. The answer is all of the above. You saw the organic growth rate particularly in Europe where the market is flat at best. And as Jim pointed out in his segment overview, we’ve had six consecutive quarters of organic growth averaging 7%.

So when you’re growing 7% in the market that’s growing 0% to 2% on a very best case, there’s a significant share gain in Europe. We’re gaining share in U.S.

Again, I think Jim gave some of the wide, but to help we’ve recouped all of the lost share when legacy Black & Decker was a little bit slow, but for very good reason that we’ve talked about to convert from NiCad to Lithium-ion.

That share gain has been -- that share loss has been completely recaptured and we’ve got the offense on the field specifically with the brushless initiative that Jim talked about. That represents about 20% of the market and we’ve about 40% of it. So that’s driving particularly our top professional power tool gains in North America.

I think the other bright spot specifically is, is sell-through. On occasion this time if you’re our -- our customers it’s quite well-known. Keep a very close eye on their inventories in the month of January because that’s the end of their fiscal year. January tends to be a slow shipment month and we make up for some of that in February and March.

The sell-through was outstanding in December and January. So it’s sell-in and sell-through which translates to share gains. Again, when our organic growth is about 2x the rate of the market it has to be share gain as long as it’s selling through.

Lastly, it’s been overwhelmingly driven by both ongoing and arguably breakthrough, new product introduction. Our vitality index is in the 30s which is quite high for a business of that nature. Both in Europe and the U.S., the sources has been a little bit different. U.S. has been professional power tools primarily.

Europe it’s been right across the board. Hand tools, power tools and even home products, some tremendous innovation in a segment of the business or sub-segment that’s more important in Europe than it is in the U.S. But doing particularly well and the words in the press release said expanded customer relationships, that’s exactly what that means.

We’ve gotten new distribution with customers particularly in Europe but elsewhere, expanded shelf space and new distribution displacing both competitors and in some cases private label that’s also helped that growth. So simple answer all of the above, but that gives us a lot more color on where it’s coming from..

And maybe just to follow on very briefly. When you take last year, $300 million of revenue from new product introductions in CDIY over a 1000 skews and then put those new products to work by leveraging them across our -- what I call in my comments, our leading array of brands.

But the flexibility that we’ve with our brands with DeWalt, with Black & Decker, with Bostitch, with Stanley FatMax which is growing significantly, Porter Cable and so on.

The ability to leverage those new products across those brands and then across the global geographies at the same time with a scale that we’ve managed to put together with both hand tools and power tools in the global footprint of the company, that’s how we’re doing it. And then the other term I used was commercial excellence.

We’ve committed to commercial excellence, and that means all those cylinders in that commercial engine are hitting at the same time. You put all that together and that’s what we’ve created is this commercial machine which is out there gaining share in many, many different places around the world..

Yes, Jim thanks for that. And just without being more specific than we need to be on this call, just one anecdote or great example of what Jim talked about.

Stanley FatMax power tools, certain North American customers and certain large retail customers elsewhere in the world, it’s the fast -- one of the fastest growing power tool brands in the market and four years ago that didn’t exist, because Stanley didn’t have the capability to make a power tool that would merit or justify putting the FatMax name on it.

And its as Jim suggested, it’s a tremendous synergy from a merger that’s now four years, almost five in the rearview mirror, but still continues to show some great results in terms of our top line opportunity and brand penetration..

Our next question is from Jeremie Capron from CLSA..

Hi, good morning. A question on the reorganization that you talked about, in terms of combining the various tools businesses under a single umbrella.

Can you give us a little more detail in terms of the timeline here and what's the ultimate goal that we’re looking at a single business division for IAR and CDIY? And the second leg to this question relates to the charges that were booked in the fourth quarter.

It looks like you booked more charges than guided just three months ago, is this related to that combination or anything else in there?.

Yes, this is John. I’ll talk about the combination and Don can give you the specifics on the charges. You’re directionally right, but your logic is -- you don’t have quite all the background, but Don will touch on it. Look, the combination just makes tremendous sense. It isn’t the entire industrial segment importantly and CDIY.

It’s our industrial tool business and our professional tool business, specifically the IAR business and industrial storage combined with CDIY to take -- to make about a $7 billion business and clearly the largest tool business in the world with leading positions in all four vertical markets as Jim discussed in his comments.

I think very importantly there are modest cost savings associated with that which tail in comparison to the revenue synergies that was on in two areas.

The combination of best practices in new product development, our product review board process and everything we do to reflect customer input and marketplace needs to more quickly develop, commercialize and introduce and sell-through new products across both of those businesses will be a tremendous advantage, secondly to apply technology that’s applicable or formally utilized in one business to the other and lastly the commercial excellence that Jim talked about, best people, best practices in each and every channel.

So in this particular case, we’re very good at taking cost up, we’ve proven that. There will be some backroom efficiencies as a result of this. The driver here though is top line synergy, organic growth by combining the best of the best, not just similar, and we think of it as the next step in the evolution of the merger of Stanley Black & Decker.

And there was enough going on that this natural, if you will, internal combination; it would have been premature to try to do that before now. We’re going to do it now. It will be reflected in our segment reporting going forward. Let me have Don talk about that a little bit and then give you a little more granularity on the charges..

Yes. So, as John just touched on, the segment reporting for the Company will change in the first quarter 10-Q because the completion of this combination of the two businesses will happen in the first quarter. So, we’ll still have three segments. We’ll have a tools and storage segment which will include CDIY and IAR.

We’ll have an industrial segment which will include Engineered Fastening in our infrastructure businesses, and then we’ll have Security in the current format, so not a dramatic change just moving one business into another in that change.

Related to restructuring specifically, we indicated in the October earnings call that, we were evaluating additional restructuring of up to $10 million to $25 million beyond the initial guidance of $25 million. We actually recorded about $54 million in the fourth quarter, so it was at the high-end of that range.

So it was very close to our expectations. A portion of that was related to the combination of these two businesses. A lot of the charges that took place in the fourth quarter were more associated to the U.S. activities, and what's going to occur in 2015 are more related to European activity..

Our next question is from Rich Kwas from Wells Fargo..

Hi, good morning everyone..

Good morning..

Just a question around guidance, in terms of the CRC-Evans business, what type of decline are you assuming within industrial given the lower oil prices and that’s obviously a high margin business, so there is some margin impact.

And then second, are you assuming any benefit within CDIY or even industrial with regards to the lower oil prices, meaning demand benefit or is that assumed to be potential optionality in terms of the organic growth guidance for the year?.

Hi, Rich. It’s Don, I’ll take that. As far CRC-Evans goes, as John or Jim mentioned, just first of all a reminder, it is 3% of our total revenue just to give you a size -- sizing of it. It is considered a small pressure to us year-over-year.

We do expect that business to probably see 10% or 20% of revenue decline, ’14 versus ’15, and it’s really just due to what we’ve seen of this halting of all the activity around construction pipeline or constructions of the pipeline. But frankly it’s not a very material impact to us, but it does have a marginal impact.

Related to your question around gas prices and oil prices and how does that, could that have a positive impact on buying activity in CDIY or industrial and whether we factored that? We have not specifically factored that into our guidance.

It’s something that certainly will evaluate as time goes on over the next 12 months, but right now that’s not specifically factored into our guidance..

Our next question is from Mike Dahl from Credit Suisse..

Hi, good morning. This is Patrick Murray on for Mike. So with respect to the FX headwinds, if we’re to see any incremental U.S. dollar appreciation over the course of the year, how much more opportunity beyond what you have incorporated into 2015 guidance do you see is opportunities to offset any incremental U.S.

dollar strengthening?.

Yes, I think we -- as I mentioned in my comments, we’ve done a lot of hedging activities to try to minimize the future impact. But if the dollar continued to strengthen versus all our major currencies like it has been over the last 30 days, there would be an impact.

I gave an example of the euro where, if the euro did move to parity over the next five months, i.e. but he middle of the year, that would probably be about $12 million to $15 million additional headwind to us. So, certainly we’ve looked at those different sensitivities and scenarios and their possibility.

As far as how we offset them, yes we have evaluated different options and -- if you remember that slide as I walk through, what we do, we first look at pricing with our customers in certain markets where we’re importing the products.

So, if there’s changes related to those currencies we have to evaluate whether we want to go back with additional price increases. The second was commodities.

So, if that environment generates more commodity deflation, do we have additional opportunities that we could go after with our suppliers, and then the third area was, cost rationalization? I don’t think there is a huge opportunity in that particular category, but there are few things that we could do if we saw a continued pressure around foreign currencies.

So, I think we’ve done enough sensitivity analysis to feel comfortable that we can deal with a reasonable level of continued strengthening over the next three to six months..

Yes. And I think to kind of remove the focus from three to six months which is, not what we’re hear to do necessarily, although I know its an important part of trying to build your model. Don, I think was -- hopefully was very helpful in talking about an equal split translation versus transactional.

This year it was about, 2014 the FX impact was about 60% transactional, 40% translational. Next year it’s about 50-50, meaning a little less of it is in our control. On the transactional piece, Don talked about everything we can do short-term.

Long-term, we were on a global supply chain network that I think Jim described quite eloquently, and the issue is moving sources of supply to the lower cost countries whether its commodities, labor costs, general cost to manufacture.

The issue with that in the short-term that I think it’s important to understand, we make premium products in 70% of what we make in terms of tools or 67% are bought by people who do it for a living.

The quality standards are extraordinarily high, and it’s very difficult to qualify material or component suppliers in places like Latin America and certain Asian markets quickly.

So, despite the fact that opportunity exists, you can rest assure that our supply chain folks are working diligently and vigorously to qualify new suppliers on a longer term basis to allow us more flexibility to shift production -- meaningful pieces of production to weaker currency markets.

But that’s something that happens over one to two years, not three to six months, and it’s just an important distinction not to understand..

Our next question is from Wini Clark from UBS..

Good morning. You noted your organic growth expectations are being muted in ’15 versus ’14 by headwinds outside the U.S. Can you talk a bit about what you’re expecting from emerging markets specifically, because while volatility continues their comps are not particularly difficult, and it seems like your MPP initiatives are gaining some momentum..

Yes, it’s Jim. We think that the emerging markets, all else equal in terms of no major change from where we are today, in terms of the environment. It will be slightly higher than our overall line average growth outlook. So, probably mid-single digits pushing, well maybe a little higher than that, but right in that kind of a range..

And our next question is from Jeff Sprague from Vertical Research..

Thank you. Good morning, gentlemen. We almost reached the milestone, and no security questions on the call, but I’m sorry, I’ll flip one in..

Thank you. Nobody was listening..

Yes, it’s nice that you didn’t have to spend that much time on it.

But could you give us a little bit more detail on how attrition is running? Where you’re at on the commercial initiatives? And any color you can share just kind of on the sale process for Italy and Spain?.

Yes, we’re in a good place on all of those. We’re not going to get ahead ourselves on Italy and Spain for obvious reasons, NDAs and things of that nature. I think Jim can give you a lot more granularity on attrition and a few of the other positive momentum..

I think as most people on the call that have been following us know that, we made tremendous progress on attrition in Europe in the last 12 months and really have put in real process. We have people, measurement systems that are tracking it, people that are accountable to manage it.

And the results reflect the improvements that we’ve made with respect to the process. And so, getting to that 12% which was something that we put out there when we were running 17%, 18%, we did that within a year. That’s a huge, huge achievement because it enables us to actually have the opportunity to grow now.

And what I mean by that is, with -- I’m taking Europe as an example. With recurring revenue as 40% of total revenue, if you are trading at close to 20% rate, you’re digging an 8% revenue hole every year before you even start originating new business.

And so, when you get down to 10% to 12% which is more of the industry average, you have a hole that’s substantially smaller closer to 4% of total revenue, and you need order growth in the kind of -- in that range to be able to be flat if you will, and that’s kind of where we are now, where you saw the flat performance in Europe in 4Q.

Now what we have to do here is, sustain the attrition at these levels which we think is very doable, and from there we have to kind of rev up the origination machine, but do it in a way where we are going after profitable business and not just cutting prices to get the business, because the other little variable in this whole equation is making sure that the gross margins that you’re taking on with a new business are high enough so that you don’t kind of depress the overall gross margins of the business.

And I think the team fully understands that over in Europe. We have new management in place as of the fourth quarter. It’s actually a guy that was the Chief Operating Officer for about a year over there, so he’s very familiar with the situation. We’ve got country -- we’ve got the country managers making a pretty good place.

Everybody knows what their plan is. We have the one issue that was operationally impossible to manage because of the market trends and structural issues which was Spain is now as you know going to be divested. And so, I think the table is set for what I described in my comments as, moving forward.

We’re going to move forward, I wouldn’t expect substantial growth out of Europe in the next couple of quarters, but I would expect to see it positive. And as we continue to make progress, then we will start to bring in some of these vertical solutions from the U.S.

and that’s when you can really expect to see the growth start to really rev up in Europe and become more consistent with what we’d have expected when we purchased Niscayah. So that’s sort of the lay on the land on that one..

You asked about process in Spain and Italy, and let me just say two things because, as I referenced before Jim spoke, we are just not in a position to provide a lot of insight on it due to NDAs and things of that nature.

We’re very comfortable saying, we’ve got a great term in place, and it’s a good combination of tested and proven senior Stanley security leaders with some good help from our corporate business development team to oversee that process.

The other thing, we’ve broken this out, recognized that Spain is 5, 6, 7 times the size of Italy relative to the size of the business and where the focus is.

And as you know Jim alluded to, well our business was heavily focused on the financial institutions vertical and probably a third of the bank branches in Spain have closed in the last year and it’s a very difficult competitive environment. So we know it’s the right decision for the company.

We do have a good team in place, process is underway, but that’s all we’re going to -- in a position to say about it for reasons that I know you’ll understand and respect..

Our next question is from Mike Wood from Macquarie Capital..

Hi, thank you. If I exclude the rest of the buybacks that you called out, the mid-point of your GAAP earnings is up about 5% from what you did in 2014. I’m curious with the free cash flow guidance you gave which is a starting point of 1% growth.

Is there anything dragging down on cash flow growth next year, higher CapEx or any kind of working capital progress that you can discuss? Or should it more closely near the GAAP earnings growth?.

I think when you look at cash flow for 2015; we have to factor in a couple of things. One, yes, there will be a little bit higher levels of CapEx, but nothing really dramatic and material.

However the working capital component will be less of a positive and frankly is a modest negative next year, because what happens as you continue to grow, you have to basically get half a turn or a full turn improvement in your working capital turn just to get a positive impact in the cash flow statement.

And as we get closer and closer to 10 turns which is a great thing, the amount of year-over-year benefit or improvement in turns is going to be smaller. And so, next year we might get three times, five times of a turn improvement in our working capital turns.

But that actually will create -- could create a negative in cash flow depending on where revenue ends up. I know that’s really a big driver there. We don’t look at that as a major issue, its just one of the benefits of the great success that we’ve seen in working capital turns.

And we still think cash flow is a great story, and will continue to be going forward..

And our last question is from Stephen Kim from Barclays..

Hi, guys, its John filling in for Steve today. Just kind of the commentary that we got over the course much of 2014 relating to the R&R [ph] market just that it was one of moderating year-over-year, but your sales in CDIY really accelerated over the course of the year.

So, can you talk about maybe some specific product categories that you’ve seen for CDIY, and then was your commentary that sell through was strong in the fourth quarter meant to signal that these trends have persisted into the first quarter of ’15? Thanks..

Well, I assume you’re talking about the U.S. because the R&R [ph] data I think typically that what you look at comes from the U.S. I think all you have to do is look at the DIY performances from the major customers to understand that the R&R [ph] market is alive and well, yes the -- at least in the home centers.

And if you look at housing starts, yes we’ve had some nice improvement there, and we know that over time that we kind of benefit from that as well. I mentioned that the U.S. demand in DIY is strong and it is, and our POS is even stronger than the underlying demand.

And so, as a consequence as we finish out the year, our inventory levels are down about a week in retail over where we would normally expect them to be, which is just indicative of when you have sales of 14% positive organic growth in North America, nobody is going to plan for that, and I think that’s what, why you see that.

Now as far as specific categories, its really -- if you go back to the professional power tools being up 20%, and I think that could be a clue as to, where the most significant growth has been, and a lot of that has to do with the cordless market and in specifically the DC brushless market.

And so, I think its really flying off the shelves, and it’s a great -- and it’s a completely redesigned tool, and its price value combination is very, very competitive. Its performance characteristics really are untouchable in the market right now with -- by the competitors, and it does it at a price that is reasonable, slightly above competition.

And that’s a driver, it’s not the only single -- it’s not the single driver, but it’s an important one. And really as John said we made tremendous progress in cordless in general over the last four years.

And gaining back all that share that was lost in kind of the ’08, ’09, 2010 period, and so a combination of those things I think is just -- and growing, improving exceptionally strong relationships with the large customers at this point of time, very constructive relationships. End of Q&A.

And I would now turn the call over to Greg Waybright for closing comments..

John, thank you. We would like to thank everyone again for calling in this morning and for your participation. And please contact me and/or Dennis if you’ve any further questions. Thank you..

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect..