Greg Waybright - Vice President, Investor and Government Relations John Lundgren - Chairman and CEO Jim Loree - President and COO Don Allan - Senior Vice President and CFO.

Tim Wojs - Robert W. Baird Jeff Sprague - Vertical Research David MacGregor - Longbow Research Robert Barry - Susquehanna Grace Lee - CLSA Deepa Raghavan - Wells Fargo Securities Liam Burke - Wunderlich Stephen Kim - Barclays Mike Sang - Morgan Stanley Mike Wood - Macquarie Capital.

Welcome to the Q2 2015 Stanley Black & Decker Incorporated Earnings Conference Call. My name is Amanda, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded.

I will now turn the call over to the Vice President of Investor and Government Relations, Greg Waybright. Mr. Waybright, you may begin..

Thank you, Amanda. Good morning, everyone. And thanks for joining us for Stanley Black & Decker's second quarter 2015 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 website, 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 second quarter 2015 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 8-K that we filed with our press release and in our most recent '34 Act filing. I will now turn the call over to our Chairman and CEO, John Lundgren..

Hey. Thanks, Greg, and good morning, everybody. This is an encouraging quarter to say the least, as everything from organic growth, the margin, earnings and capital allocation demonstrated that innovation is robust, SFS 2.0.

is gaining traction and our management team and our 50,000 associates around the world are demonstrating agility and executing really well in a volatile environment and as a consequence they are overcoming numerous challenges that are well beyond their control.

So let’s get to it, second quarter organic growth of 8%, offset by currency of negative 8%, so essentially flat revenue. This is our fourth consecutive quarter of organic growth at or above 6% with Tools and Storage leading the way up with 11% organic growth. We as a company achieved and delivered growth across all three segments.

The Black & Decker merger closed in the first quarter of 2010, more than five years ago and our operating margin in 2Q ‘15 expanded to a post-merger record of 14.4%, plus 70 basis points versus second quarter 2014. Volume with sharp cost focus and price realization delivered robust operating leverage despite a $50 million foreign currency pressure.

There are lots of puts and takes with respect to FX and Don will provide a lot more detail around this in our estimate for the year, which still includes $200 million to $220 million of foreign exchange headwind that we have every intention of overcoming.

Second quarter diluted EPS was a $1.54, up 11% versus prior year, overwhelmingly, on strong operational performance.

And on June 23rd, we announced the dividend increase of 6% from -- to $0.55 a share from $0.52, that maintains our compelling dividend payout and as well as, an unrivaled history on the New York Stock Exchange in terms of continuity of dividend payment and increasing the dividend.

As a consequence of a great first half and actions we are taking up for the remainder of the year, we are increasing our 2015 full year GAAP EPS guidance range to $5.70 to $5.90 from $5.65 to $5.85, so the range is now up 6% to 10% versus 2014 and that’s despite a $1 to $1.10 per share foreign currency earnings pressure.

Let’s take a look at our sources of growth, which in fact were very similar in terms of both source and geography for the first quarter of 2015. Volume was up 7%. We got 1% from price, leading to the 8% organic growth that I referred to previously.

No impact from acquisitions, offset by 8% price, so you see flat revenue for the year -- for the first half of the year, as well as for the second quarter. All geographies showed some strength, with the U.S.

leading the way at 11%, strong growth in Europe [Technical Difficulty] despite relatively stagnant market condition, emerging markets as a total were up 4% despite some areas of weakness, specifically Russia and China that Jim will talk to you about in a minute, and the rest of the world was up 7%.

So the very, very strong second quarter back to back up 8% organic growth, so enough from the total there is lots of really good news and strong momentum within each of our three segments. So let me turn it over to Jim to take closer look..

Okay. Thanks, John. I'll start with Tools and Storage, which continues to be a great story.

Revenue was up 4% while operating margin grew 9%, we said our post-merger record with a 64.4% rate, once again demonstrating impressive operating leverage, gains resulted from volume leverage, modestly positive price, operational productivity and continued tight SG&A cost management, which more than offset another quarter of severe currency headwinds.

Organic growth remained in double-digit territory, this time 11% averaging a noteworthy 10% over the last four quarters. All regions contributed with strong performances as North America was up 14%, Europe 7% and emerging markets accelerated to 5% growth.

Across the global product lines, organic strength was broad-based, with Professional Power Tools up 14%, Consumer Power Tools up 15%, Accessories up 12% and Hand Tools & Storage up 5%.

The categories benefited from strong customer level execution and new product introductions as the Tools and Storage innovation machine not only remains robust but continues to gain momentum. Contributing to growth within the quarter was an outdoor season, which is tracking to a more normal pattern.

Against this backdrop we released the stream of new products in the category, including the DeWALT outdoor, which delivers a full line of products with the performance and runtime demanded by long care professionals that includes a compelling new [indiscernible] line which competes favorably with many gas power tools.

This is a great example of DC brushless technology and advances in lithium-ion that have opened up segments that historically have not been served by cordless. POS was again robust to get across the channels with major big-box customers in the U.S.

continuing their strength, aggregate weeks on hand, are in a good place remaining at or below prior year levels. We also believe sell-through in the hardware, lumber store and staff channels was very strong as both resi and non-resi markets -- construction markets benefited from good growth in end user demand.

The e-commerce channel continues to grow an importance, particularly for the DIY end-user. This is true for both big-box and independent retailers. Not surprisingly Industrial markets in the U.S. remained somewhat weaker than we saw in 2014, but we are still positive.

For the ninth consecutive quarter, we are able to highlight Europe at an impressive growth story for Tools. The business is averaged 7% organic growth over this time period in a relatively flat market.

Our team continues to control their destiny by leveraging our broad stable of leading brands, launching new innovative products across categories and adding new points of distribution. European Tools represents a prime example of commercial excellence and action as we define it in SFS 2.0.

Growth within Tools emerging markets accelerated in the quarter as a double-digit performance in Latin America and solid growth in India, Turkey, the Middle East and Africa was enough to overcome a steep market related decline in Russia and a weak performance in China.

The mid-price point product rollout led by our Stanley Power Tool line continues to proceed successfully and this important initiative provided support for emerging market growth amidst volatile underlying market conditions. And looking at the markets, our estimate is that the U.S. is growing about 5% to 7%.

In constant currency, the European market is slightly positive and the emerging markets are growing about 2% to 3%. On a global basis, this takes our total market growth in 2Q at about 3% to 4%, which when compared with our 11% organic performance implies continued share again.

Many ask us whether or not the high levels of growth can continue as the comps get tougher and global GDP trends slightly lower. Our response has been consistent. Organic growth in the double digits against this backdrop will be difficult to sustain, however, in the environment we are operating in.

This business has the ability to deliver growth within our 4% to 6% targeted levels on an ongoing basis. We have leading brands, global scale and organization that continue to raise its own high standards for innovation, as well for commercial and supply chain excellence.

And clearly we are well on the way to creating the organic growth culture and vision when we integrated Stanley and Black & Decker. SFS 2.O is the new catalyst, which will continue to drive momentum. Now moving to security.

We continue to make progress on most underlying businesses in security, although this quarter it was two steps forward and one back. Execution in both Europe and the North America Mechanical Locking businesses was very encouraging.

However, North American convergent, we are continuing to deal with growing pains related to an increasingly complex business mix, specifically installing jobs efficiently.

It was truly a watershed quarter for Europe, where the list of the compliments, including 3% organic growth and double-digit order rates, attrition within target ranges and the successful sale of Spain and Italy, with nominal but positive cash proceeds. Our European management team is executing well and delivering their turnaround commitments.

North American Mechanical Lock business also showed excellent progress with 4% organic growth and improving profitability. The business looks to finally be emerging from the challenges of the distribution model change era and is now focused on revitalizing its performance through innovation and commercial excellence.

The biggest challenge of the quarter was in our North American Electronics business, where continued gains in vertical markets were achieved at the expense of core growth as the team struggled with the efficient installation of some of the larger, more complex vertical market jobs.

These challenges are well understood and being addressed by our new and capable management team. Softness in Asia also cut into security 2Q organic growth and profitability. So, overall, we made some very good operational progress in the quarter with some isolated and manageable issues.

We continued to be confident in a positive trajectory for security and remain committed to our assessment of its strategic fit by the second half of 2016. Now turning to Industrial.

Industrial had a solid quarter, led by another steady performance from Engineered Fastening and Resilient Infrastructure business, the latter of which is battling significant market headwinds in oil and gas and hydraulics. The net result was a 4% decrease in revenue as 4% organic growth was more than offset by an 8 point negative currency headwind.

Margins rebounded sequentially to 19.1% and expanded 140 basis points versus 2014, while operating margin grew by $3 million or 3%. Volume leverage across Engineered Fastening and Oil and Gas, combined with tight cost controls and pricing, more than offset the negative profit impact of foreign exchange.

Engineered Fastening delivered a 4% organic performance, led by high single-digit automotive growth, once again outpacing light vehicle production, which was relatively flat. Additionally, we saw solid growth within Electronics. This was offset lower North American Industrial sales tied to a slowing market.

So it was an impressive quarter of organic growth and margin expansion despite the translational currency headwinds experienced within the business. Infrastructure which include oil and gas and hydraulics, was up 3%, quite an accomplishment considering the market exposures of these businesses.

Oil and gas benefited from a large international equipment sale, which contributed to 11% organic growth for the quarter. We still expect this business to decline organically for the full year, but this quarter's results are a great example of the team’s willingness to drive forward in the face of market headwinds.

Growth was moderated by a 13% decline within the hydraulics business, which services demolition markets that are highly correlated to the vagaries of the scrap steel market. All in all, it was a solid operational performance in industrial with organic growth and margin expansion despite soft markets and significant currency headwinds.

But as you look at this quarter's performance in the aggregate for the company, it represents another strong quarter with 8% organic growth, record operating margin levels that expanded 70 basis points in the face of 80 basis points of year-over-year currency headwinds.

Our management team continues to execute at a high level, overcoming numerous external obstacles, including the strong dollar and dynamic end markets to produce exceptional results. With that, I'll turn it over to Don Allan..

Thank you, Jim. Good morning. I’d like to start by spending a little bit time on our second quarter and year-to-date free cash flow performance. For the second quarter, free cash flow was $247 million, which brings us to a relatively neutral performance on a year-to-date basis.

The quarterly and the year-to-date declines versus the prior year are explained by carrying higher amounts of inventory compared to last year to service the increased levels of organic growth we are experiencing, primarily within Tools & Storage business. We do, however, continue to realize benefits from applying our core SFS process and principles.

And for the second quarter, we achieved seven working capital turns, which was two times of a turn expansion versus the prior year. We are confident that we will deliver a continued improvement in 2015 towards our vision of 10 plus working capital turns for the company.

We will continue to monitor the working capital levels closely to ensure they are adequate to support our higher growth expectations for the full year. The core SFS principles require agility to respond when business conditions change such as the strong organic growth we've experienced in the last four quarters.

SFS has enabled us to reach working capital on asset efficiency levels that are considered world-class compared to our Industrial and Security peers, but at the same time allowing us to be agile in changing market conditions to ensure we meet our customers’ needs.

I’d also like to spend a little bit of time and give you a quick update on our share repurchase program. During the quarter, we executed cash repurchases of approximately $100 million.

Taking into account all the actions to date, this brings the cumulative total share actions to the equivalent of approximately $1 billion, which fully achieves our plan announced back in the fourth quarter of 2013.

As we reviewed during our Investor Day in May, you should expect us to return over time to a capital allocation of approximately 50% of our free cash flow being deployed to M&A and the remaining 50% back to our shareholders via dividend or the occasional optimistic share repurchase.

So let’s move to page 10 and spend a little bit of time on the 2015 outlook. As indicated by John earlier, we are increasing the 2015 EPS guidance range to $5.70 to $5.90 versus the previous range of $5.65 to $5.85.

This is due to stronger organic growth as well as additional indirect cost savings, which will be partially reduced by slower margin improvement trajectory within Security.

So let’s walk through a little bit of the detailed around these assumptions to provide a level of information that leads to a $0.05 increase to the midpoint of our prior outlook guidance range. First, we expect organic growth to be approximately 6% versus our prior expectations of approximately 5%.

This change recognizes the strong organic growth momentum that continues with our Tools & Storage business. Additionally, we are increasing our expectation modestly within Engineered Fastening due to the solid first half trends within that business.

These improve growth expectations, combined with all of our other businesses tracking to their planned organic growth rates results in an overall improved performance for 2015. This overall improved growth performance contributes an incremental $0.15 EPS impact over and above the EPS benefit that was included in our guidance last quarter.

The next item I’d like to touch on is the work we’ve been doing on our indirect cost savings programs across the company that continue to yield benefit throughout 2015. This should contribute approximately an additional $0.05 of EPS benefit versus our last quarter's guidance as well.

So the total of those two items contribute $0.20 in positive momentum versus our April guidance. Finally, we now expect a slower trajectory of margin improvement within Security, due primarily to the North American electronics project mix matter that was described by Jim earlier.

This represents a headwind of approximately $0.15 of EPS for 2015 versus our April guidance assumptions. All the other planning assumptions within guidance, including FX, tax rate, shares and restructuring costs remain the same.

But I would like to spend a little time discussing FX, but there has been various movements in currency over the past few months. However, based on the present spot rates this week, our current estimate of 2015 versus the prior year is still within our April range of $200 million to $220 million.

Significant movements in the British pound, the euro, Canadian dollar and Brazilian real over the past few months have netted to a relatively neutral impact versus that April estimate. A few other key items of note relative to our annual EPS guidance that you should be aware of.

The first item is restructuring charges in the third quarter of 2015, will approximate 30% of the full year expectation of $50 million. There is some timing shift from the second quarter into the third quarter for several key actions. The second item is related to the third quarter as well.

I have a few comments that I want you to understand related the timing for the back half of the year. First, we obviously expect higher planned restructuring charges in the third quarter versus our April estimate, as well as a higher tax rate in that quarter as well.

Combining that with the significant currency headwind, this will result in the third quarter EPS of approximately 24% to 25% of the full year EPS estimate. Another factor to consider when you look at the third quarter is the operating margin rate.

It will be relatively flat versus the prior year, as we experienced the largest quarterly impact of currency headwinds during this quarter, which is estimated at this point to be approximately $75 million. Let’s turn to segments on the right side of the page.

We expect high single-digit organic revenue growth, solid operating margin expansion year-over-year in the Tools & Storage segment, due to the volume leverage, cost actions, price and other significant positive actions that Jim touched on earlier in his commentary, which will more than offset the significant currency headwind we are experiencing in that business.

Organic growth is expected to decelerate slightly in the back half on more difficult comparables but still will be at very healthy levels. Moving to our Security segment, we still expect to have modest organic growth for the full year.

The organic growth in Security North America will compliment an improving performance in Security Europe, which continued its good momentum in the second quarter as you heard from Jim. This growth will be partially offset by declines within the China markets, as we continue to see some pressure in that part of the business.

Profitability will be relatively flat versus the prior year as Security Europe will deliver solid year-over-year profit growth and North America mechanical will have healthy volume leverage. However, these improvements are being offset by negative North America electronics project mix as well as lower volumes within China.

As Jim stated earlier on the call and we have stated previously several times, the multi-year growth in margin rates recovery trajectory of this business will not necessarily be linear. And we will have occasional timing dynamics to work through resulting from the ongoing transformational activities.

Now moving to Industrial, we still expect solid mid-single-digit organic growth as Engineered Fastening strengths will be able to move -- to more than offset the declines in our infrastructure business.

We also expect margins to be flat to up versus prior year as volume leverage generated by Engineered Fastening and cost controls will more than offset the deleveraging impact of both of our infrastructure businesses due to the sluggish market conditions that were touched upon by Jim.

In summary, our revised EPS guidance range demonstrates the impact of our organic growth strength, combined with indirect cost savings, which are more than offsetting the slower margin improvement trajectory within Security.

Therefore, we will achieve solid operating margin leverage and a robust organic growth even with significant currency headwinds, which means, we expect earnings will expand 6% to 10% on an overall revenue decline of approximately 1% in 2015.

The last thing to touch on this page is related to our free cash outlook for the year, which we still anticipate be at least a $1 billion.

However, as I mentioned earlier, we are monitoring the relatively higher levels of working capital experienced in first half of the year to ensure our working capital is adequate to service the higher organic growth expectations for the full year. This dynamic could put modest pressure on our free cash estimates for 2015.

So let’s summarize the presentation portion of our call today. We delivered a very strong first half for the year and here are some of the highlights. We are very pleased with another quarter of strong organic growth, our fourth in a row, at or above 6%.

The proactive tight cost controls, surgical price actions across the company enabled excellent second quarter operating leverage in the face of $50 million currency headwinds. Progress continues with Security’s multiyear transformation with favorable results in the European electronic and North America mechanical businesses.

And then finally, our share count actions we have taken since the start of the fourth quarter of 2014 have effectively satisfied the approximately $1 billion of share reduction plans that we announced in November of 2013.

As we communicated during our Investor Day in May, our focus in 2015 and beyond will be leveraging our world-class franchises and brands, strong free cash flow generation and continued shareholder friendly capital allocation.

This continues to manifest itself through our focus on accelerating organic growth through SFS 2.0, advancing our Security multiyear transformation, so the portfolio review of this business is fit by the second half of 2016. Continue our disciplined approach to cost and pricing actions to ensure operating leverage is achieved.

And ongoing focus on working capital towards our 10 plus returns goal and finally resuming M&A activity likely in the second half of 2015, with a focus on Tools & Storage and our Engineered Fastening franchises. We believe this approach will help position our company to deliver on the 2018 financial objectives we communicated back in May.

That concludes the presentation portion of the call. Now let’s go to Q&A..

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

Thank you. [Operator Instructions] Our first question comes from the line of Tim Wojs from Robert W. Baird. Please go ahead..

Yeah. Hey guys. Great job..

Thanks Tim..

I guess just starting I guess my question’s more in the Tools & Storage business.

Could you just talk about maybe what you are seeing from a DIY and Professional Power Tools end customer standpoint? And you’re starting to see I guess on the professional side -- are you starting to see employment come back in construction? Is that really a multiyear trend that will really benefit growth as we think about the next couple of years?.

Yes. Hey, Tim, this is John. It’s a complex answer and that it varies a lot by geography. And I think that’s the only point I want to leave you with. The trends in the US are good.

As demonstrated by the numbers that Jim walked you through, we’re seeing more end users, we’re seeing both online purchases, purchases through the two step channel, professional purchases through the big box, all good. You see or large customer’s numbers, at the same time we do. They are nicely 5% to 7%, and of course we’re above double that rate.

So we are gaining share. Now that being said, and that’s 50% as you know, or 52% of our revenue is in North America. Europe is relatively flat. So our organic growth in Europe is representing growth of 2, 3, 4 times the rate of the market. It certainly hit bottom. We don’t see it getting any worse. But in Europe, it’s far from robust.

And the rest of the world, I think Jim talked about it pretty nicely. There are certain emerging markets, China and Russia way down, China relatively flat, the rest of the world doing okay. But in the North American market, we are cautiously optimistic that the signs are positive.

They could be better, but they are certainly more positive than they have been. That shows up in our customer’s numbers and it certainly shows up in our numbers. So that’s helping us maintain a cautiously optimistic outlook..

Thank you. Our next question comes from the line of Jeff Sprague from Vertical Research. Your line is open..

Thank you. Good morning, gentlemen. The phenomenal performance in tools and storages forces me to a question on security.

So North American conversion, can you just elaborate a little bit more on what’s going on there? Is there an issue of not pricing properly for complexity? Or is there an issue of just kind of experience and competency on bigger jobs and kind of a learning curve? Any additional color there would be helpful..

It’s Jim. I think the issue is more of a learning curve issue.

It’s also a little bit of an organizational issue in terms of how exactly, how we’re organized and the types of people we have experience, the level of experience that we have with people installing these very complex jobs, because we’re getting into highly engineered solutions with Internet of things and software.

And it’s much more complex than the typical historical access control and intrusion type systems that we used to have. So there is a learning curve there and there is also a bit of a talent kind of training and development issue. Now pricing, I think we’re gaining experience on pricing.

We are creating a lot of value with many of these solutions and some of the verticals we are doing a really job capturing the price, the value in the form of price and then some of the other verticals. We need to improve it as well.

So I think we will see continued progress in terms of the moving up the learning curve, but it’s not an overnight kind of a process..

Thank you. Our next question is from the line of David MacGregor from Longbow Research. Your line is open..

Yes. Congratulations on a great quarter as well. In security, you talked last quarter about seeing an increased order rate and then that came through strongly this quarter and now you’re talking about seeing the ordering rate in Europe continuing to grow.

I guess the question is really just, what’s the rate of growth you’re seeing in those orders? Does that order growth have a long tail or do those orders come through much more immediately?.

The order growth definitely has a long tail. It typically averages about six months in terms of its tail and the backlog is growing in North America and in Europe, it is growing as well, I would say growing even more in North America. The European folks are doing a better job efficiently installing the backlog.

North American folks have a growing backlog and have the opportunity to install at a faster rate, but are experiencing some learning curve issues as we just discussed. So it’s all encouraging from an order rate perspective and we just need to do a better job in North America on the installation side..

Yes, David. This is John. Just to add on because it ties into a Jeff’s question earlier and I think Jeff, you are on the right track and Jim I think explained very well what it is. Within that long tail, you have a mix of obviously size of projects as well as margins.

And in appropriate world, we installed a higher margin projects first, which is not always an option, obviously given contractual commitments and customer needs.

But it’s one of the more difficult businesses when we just look at open orders or backlog to forecast that on a quarterly basis because the sixth plus months of time to get these things install. So Jeff’s earlier question and yours are right on. I think Jim described it is as accurately as we are able to.

And we continue to learn more about it everyday and we’re getting better everyday at both prioritization, pricing, cost estimating, and it’s all part of a learning curve to which Jim spoke..

Thank you. Our next question comes from Robert Barry from Susquehanna. Your line is open..

Hey, guys. Good morning..

Good morning..

I wondered if you could comment on the benefit to industrial revenue and margin in the quarter from the large oil and gas equipment sale. And then more broadly, what is your outlook for the oil and gas or infrastructure business? Thank you..

Sure. This is Don. I will take that one. We did -- as Jim mentioned, we did have a large order in the second quarter associated with equipment, which does happen occasionally in this business and particularly in the Far East.

We do get an occasional situation whether the large pipeline being constructed and we are just primarily selling equipment and then training them on how to use the equipment effectively in the construction process. Those things range from occurrence from anywhere from 6 to 12 months occasion they happen, but they are very sporadic.

And we don’t end to plan for those types of sales. And I think it’s just happened to occur in the month of June, which we’re all very pleased to see.

As far as our outlook of oil and gas, I mean which continues to be similar to what we’ve been saying for the last almost year now where the level of activity of construction of pipeline is really on the onshore really not existing at this stage.

There continues to be a lot of activity within the industry about the potential kind of ramp up of activity in 2016. We have not seen specific quotes within that nature of the stage that would give us a high level of confidence, but then we’ve also seen a downturn lately in the oil prices as well.

So there is still volatility in this space, but ultimately we do feel that we are going to see some type of ramp up in activity in the next 12 to 18 months of pipeline construction, because there is a great deal of pent-up volume that needs to be dealt with and have to take to the stage..

We are also seeing on the oil and gas onshore. It’s the onshore business that looks like it might get some legs next year, because we are doing a lot of prep work with specifications right now.

Our concern is and the reason Don is very circumspect about it is, because there is a good chance that these types of projects will get delayed if the oil prices don’t recover. And again, the gas prices are also a factor here because the onshore market is about 70% gas.

The offshore market, which is another big piece of our business, doesn’t look to be too favorable anytime soon. So it’s kind of a mixed bag and we expect probably double-digit declines in the oil and gas for the next couple of quarters, and then we will see what happens when the comps get easier and the activity picks up..

The other thing I would want to just go back on the first part of the question just to make sure people don’t get a view that this order was a huge impact to the second quarter. The impact at margin, the profit for EPS was less than $0.02 of EPS in the quarter..

Thank you. Our next question comes from Jeremie Capron from CLSA. Your line is open..

So this is Grace Lee sitting in for Jeremie Capron. Congratulations on a good quarter. We hear quite a broad-based trend in automotives end market.

Could you give us a more color around engineered fastening? In which market do you see the strongest growth? And also how would you envision the growth trajectory going forward?.

Well, when you say which market, I mean, we generally….

Geographically..

Yes, geographically, okay. So Asia was -- we’re generally outpacing light vehicle production wherever we are operating geographically. I will say that I think the North American and European markets were a little stronger than the Asian markets in this particular quarter, but it’s all over the map in terms of quarterly -- quarter-to-quarter.

So it’s -- I would say that it’s -- our growth is not -- is less market related and more just penetration of platform, lot of platforms as we go here, but we do consider, although overall production was about flat for the global light vehicle. So it wasn’t a particularly strong quarter at all for the market..

And our long-term view of that business answering the second half your question is that we think it’s a business that fits into our long-term organic growth vision of 4% to 6%. And it’s demonstrated a good track record to be within that range.

And as it adopts more of the commercial excellence activities and innovation activities, that’s 2.0, we think that will only assist in that ability to continue that on a long-term basis..

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

Good morning. This is Deepa Raghavan for Rich Kwas. Two questions. Two parts to it.

Oil and gas business, I know you mentioned 11% organic growth spike -- from one-time spike, but could you share with us what the revenue growth for the total industrials would have been on an organic basis ex this spike? And also what the margin number might have been ex this one-time item? I am just trying to squarer up these strong margins you printed this quarter with the forecast.

Second one..

I will make it very clear. It was $7 million of revenue and $3.5 million of operation margin..

Which translates to less than $0.02 a share due to the large relatively large for oil and gas, it’s less than a $300 million business. So when you get a $7 million order shipped in the quarter, that’s large on a very small base on our $2 billion plus industrial segment base or $1.7 billion engineered fastening base.

However, if you want to look at it within oil and gas, it was large; within the segment, it was tiny..

And then just for analytical purposes, we understand why you’re trying to get to a run rate, but please don’t think of it as a one-time item because it’s part of the ongoing discussion..

As we said many times as it relates to oil and gas, it’s one of our few businesses, infrastructure in general, and oil and gas in particular where it’s a long cycle business with large lumpy orders, unlike our Global Tools and Storage business and even a security business the way we install and recognize revenue.

You get large orders and depending on when they are fulfilled in a quarter has tremendous variations. So it’s one of our few businesses where quarter-to-quarter the numbers can vary dramatically due simply to timing..

And as I said earlier an answer to the first question, we’ve seen this roughly every six to nine months. We have sometimes as large order like this, so it’s not a one-time item. Maybe one time in a specific quarter, but when you look at a year, you can have one to two of these and even occasionally three that happen every year..

Thank you. Our next question comes from Liam Burke from Wunderlich. Your line is open. Please go ahead..

Yes. Thank you. In the tools and storage business, you talked partially about the construction.

Outside the construction, both on the industrial and on MAC tools, how those markets have been for you?.

Well, the markets have generally been good in terms of MAC tools and markets. As you looked at some of the numbers that come out, they’ve been very good. The statistics very recently published in the last 10 years in the U.S., which is overwhelmingly where MAC tools is of course.

Car ownership, the average age of cars on the road has gone from slightly under nine to slightly over 11 years, which means cars have been built better, but it also means they’re on the road longer and so there is a generally healthy environment for automotive repair and automotive aftermarket. That’s clearly helping MAC.

What’s also helping MAC is just the benefit of it been part of our Global Tools & Storage business with a great product development, product introduction, good sales rhythm, good forecasting. A lot of the newer cars of course require a lot of diagnostics and something where we’re relatively underdeveloped compared to some of the competition.

But in general, Liam, those markets are healthy. And we benefited from that, but we clearly believe we are growing faster than those end markets, which implies share gain of course..

On the industrial side, clearly, there is a big differentiation within industrial markets by segment. And so the oil and gas issues within industrial marketplace are weighing on growth. We got ag laying on growth and mining as well and hydraulics.

So, mixed bag in industry, I would say the MRO channel is little weaker than it has been, maybe inventories are little higher, we’re not sure about that, but it feels that way. We don’t have great data on the MRO channel. It seems like there might -- won’t call it a correction, but sort of an inventory build maybe going on there.

So in general, the industrial markets are a little weaker than they have been over the last year or so..

And next question comes from Stephen Kim from Barclays. Your line is open..

Yes. Thanks very much guys. Strong quarter. I guess a couple of questions, but let me just ask one. Essentially, this quarter in terms of guidance, you are talking about your year coming in about $0.20 better, due to the, frankly, organic growth and then I guess $0.15 headwind due to the security issues that have been discussed.

I guess I'm curious as to what happened in the quarter. If you could give us a sense for how much better the organic growth in terms of cents in that same basis, $0.20 and that was the $0.15.

If you could give us a sense for what happened in the quarter in those two buckets? How much better was the organic growth in terms of cents and how much worse was the security, relative to your expectations going-in in the quarter? Thanks..

I’ll take that. This is Don. I think our organic growth was about two points better in the second quarter versus beginning of the quarter expectation and most of that was driven as you might imagine in Tools & Storage, a little bit an Engineered Fastening.

Our EPS level, how does it play out $0.20 versus $0.15? I mean, the way, my view would be, security was about $0.03 to $0.05 off expectation in the second quarter and you can do the math the rest of the way.

But clearly, Tools and Storage outperformance, depending on how you look at our outperformance of the company, we look at the vast majority of that $0.10 as an operational outperformance and a lot of that’s being driven by Tools & Storage. There is some plusses and minuses below operating margin but the bulk of that is next to zero.

And really what you’re looking at is a $0.05 to $0.08 operational outperformance, but if you factor that $0.03 to $0.05 in, then Tools & storage was somewhere around $0.08 to $0.10, or $0.12 outperformance..

Tools & Storage plus industrial..

Plus industrial. Thank you, John..

Our next question comes from Nigel Coe from Morgan Stanley. Your line is open..

Hey. Good morning guys. It’s Mike Sang for Nigel. A few comments on how the quarter phased? I mean, we’re getting conflicting data points with oil and gas over dipping and [indiscernible] is volatile and I think even construction has been a little bit lumpy.

So if you could talk about growth ex in June and how that’s trending to July that would be great? I’m just trying to get a feel for back half of this facility? Thanks..

This is Don. I’ll take that one. We -- actually when you look at the second quarter, we saw a pretty balance level of growth across the quarter, especially in Tools -- actually in all our business. As we look at all our businesses, we saw relatively healthy growth in all our businesses in each point of month across the quarter.

And so we didn't see an accelerating trend or a decelerating trend in the month of June. Our guidance is reflective. Obviously, we feel good with what we’ve experienced in the first half of the year and the momentum as we exited the first half of the year, which allowed us to increase our organic growth assumption of 5% to 6%.

So, we’re clearly seeing trends that make us feel at least, reasonably good about the market. We will be the first one to admit. There is a lot of conflicting data and information out there across the construction and industrial phase as to what might happen in the back half of the year.

And as a result, we’ve evaluated that combined with a very healthy organic growth performance in the first half. I think we’ve put forth a very balanced view of the full year..

And just to add briefly do that. I think as Jim pointed out in his piece of the presentation, our largest business obviously is within GT&S, Global Tools & Storage. It’s where we have the best data. Inventories are at or slightly below normal levels that bodes well for the future.

That’s partially offset by relatively weak industrial markets compared to what we’d like to see.

But simply said, a very smooth quarter and a very good position in terms of inventories at the customer level, which has led to our guiding the second half of the year the way we have versus importantly, if you look at the details, some very, very steep and difficult comps, but keep that in mind as you look forward..

Our next question comes from Mike Wood from Macquarie Capital. Your line is open..

Hi. Congratulations on the organic growth..

Thank you..

My question was on the Security business. You return to the organic growth in Europe.

Can you give us some color in terms of what the margin range is now, the improvement in Europe? And is that -- is your decision on what action you’re going to take in security, dependent upon the execution of the business or the valuation kind of how that parses out within family? Thank you..

As far as, Europe goes, as Jim mentioned in a nice level of detail that the business continues to progress forward. It’s turned the corner in the sense of organic growth over the last two or three quarters. We’re starting to demonstrate modest level of 3% in the second quarter, which we're pleased with. The profitability continues to improve.

It’s still in the range of mid to high-single digits and as it exit this year, it will certainly be at the high single-digit level as it continues to progress in the back half of the year through its transformation. So, we really -- and that’s really what we’ve communicated in the past, so it’s consistently performing with our expectation.

As far as, our view as to our decision associated with the fit in the portfolio, it will be a combination of factors to evaluate. And certainly, the one that, probably, drives the most, a largest part of decision will be valuation and if the valuation improves based on a certain outcome that we make related to that decision.

And ultimately, we believe we’re here to drive shareholder value over the long-term and if we think whatever decision we make is going to achieve that result that will be a big driver of decision. Certainly, evaluating how its performing is a factor but I don't think it’s the primary one..

Yeah. Let me -- this is John. Let me just add to that. I certainly agree with everything Don said. But as we’ve had a lot of focus again on the 15% of our business that’s performing slightly below our line average specifically. So, I think, Jim pointed out European security and North American conversion. We’re focused on improving the performance.

But I think it's fairly important just to note that while it’s -- that subsegment of that segment are performing at a level slightly below our [OM] [ph] average. They’re performing right in the middle of fair way, relative to their peers. This is not a broken business. It’s the business that’s performing not as well as it has in the past.

There is some industry trends, as well as some internal executional issues that Jim spoke about I think in great detail. I guess, I just -- we need to be on record. This is not a broken business. It’s a good business. It's been better and it will be better going forward.

And our assessment of it will be based on both the trends that as Don said, we’re here to create shareholder value. That’s ultimately going to be the driver this time next year as we zero in on it fit in our portfolio relative to elsewhere..

Thank you. And I’ll now turn the call back over to Greg for closing remarks..

Amanda, thanks. We’d like to thank everyone again calling in this morning and for your participation in the call and obviously, please contact me if you have any further questions. Thank you..

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating and you may now disconnect..