Dennis Lange - VP, IR Jim Loree - President and CEO Don Allan - EVP and CFO Jeff Ansell - EVP and President, Global Tools & Storage.

Rich Kwas - Wells Fargo Securities Michael Rehaut - JP Morgan Chris Belfiore - UBS Tim Wojs - Robert W. Baird Scott Redner - Bellman & Associates Josh Pokrzywinski - Wolfe Research Mike Wood - Nomura Instinet Rob Wertheimer - Melius Research Ken Zener - KeyBanc Capital Market David MacGregor - Longbow Research.

Welcome to the Fourth Quarter Full Year 2017 Stanley Black & Decker Earnings Conference Call. My name is Shannon and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded.

I would now turn the call over to the Vice President of Investor Relations, Dennis Lange. Mr. Lange, you may begin..

Thank you, Shannon. Good morning, everyone and thanks for joining us for Stanley Black & Decker's fourth quarter and full year 2017 conference call. On the call, in addition to myself, is Jim Loree, President and CEO; Don Allan, Executive Vice President and CFO; and Jeff Ansell, Executive Vice President and President of Global Tools & Storage.

Our earnings release which was issued earlier this morning and a supplemental presentation, which we will refer to on the call, are available on the IR section of our website. A replay of this morning's call will also be available beginning at 2 PM today. The replay number and the access code are in our press release.

This morning, Jim, Don, and Jeff will review our fourth quarter and full year 2017 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 materially differ from any forward-looking statements that we may make today.

We direct you to the cautionary statements in the 8K that we filed with our press release and our most recent 34 Act filing. I'll now turn the call over to our President and CEO, Jim Loree..

Thanks Dennis and good morning everyone, thank you for joining us. As you saw in this morning’s press release, we delivered a solid fourth quarter performance bringing closure to an impressive 2017.

The company continued is above-market organic growth trajectory and developed operating margin rate expansion, strong EPS growth and very good free cash flow conversion. This solid performance highlight the power of coupling our very developed organic growth machine with a return to acquisitions.

We are encouraged and we believe that this trend will continue in to 2018. Moving to the fourth quarter numbers, revenues were 3.4 billion, up 17%, with organic growth of 8%. Acquisitions added 9 points of growth and currency contributed 3 points. These factors were partially offset by the mechanical security divestiture.

Tools and storage continued its strong contribution accelerating to 11% organic growth and 26% total growth. With strength in all major geographies and business units, this performance reflects a vibrant series of growth initiatives around the globe and a stream of innovations that we have brought to the market place including FlexVolt.

As expected, industrial decelerated in the quarter to a still positive 2% organic, just ahead of our expectations. All three industrial businesses delivered growth in the fourth quarter, which was enough to more than offset anticipated declines in engineered fastening electronics business, as well as lower self-piercing rivet system sales.

Security ended the year with 2% organic growth including modestly positive performances from both Europe and North America and Don will provide you with a deeper dive in to business level operating performance during his remarks.

Our total company operating margin rate excluding M&A related charges remained healthy and expanded 30 basis points versus prior year. EPS for the quarter was $2.18, a 27% expansion as strong operational execution was coupled with lower restructuring cost.

Also noteworthy, we reached agreement in late December to purchase the industrial focused business of Nelson Fastener Systems for $440 million in cash. The agreement excludes Nelson’s automotive stud welding business and is a write down to fairway bolton for engineered fastening.

Nelson increases our presence and the general and industrial end market expands our portfolio of highly engineered fastening solutions and will deliver significant cost synergies relative to its size. Nelson’s LTM revenues were approximately 200 million. The company employs about 700 people and operates 11 manufacturing sites.

We expect that transaction to close in the first half of 2018 and look forward to integrating Nelson and adding scale and capabilities to engineered fastening. Now let’s turn to full year highlights, 2017 was a year of impressive financial performance, strong execution, and progress towards our strategic objectives our 2022 vision.

Full year revenues were 12.7 billion, up 12% including a 7% contribution for organic growth, as well as a 7% contribution from acquisitions. Our operating margin rate expanded 40 basis points to a record 14.8%.

Productivity and cost reduction initiatives supported a 40 basis point expansion in gross margin despite nearly a $100 million of currency and commodity headwinds. 2017 was a case study of SFS 2.0 in action, innovation, commercial excellence and digital excellence fueled above market growth and margin expansion.

That growth along with cost and asset efficiency from functional transformation and fuller SFS enabled us to continue to make targeted investments to support future innovation, growth and margin expansion, all-in-all a highly virtuous circle. Ex charges, diluted EPS for the year was $7.45, a 14% increase and a new record for Stanley Black & Decker.

Free cash flow remained robust at 976 million and cash conversion came in at our target of approximately 100%. Turning to portfolio strategy, 2017 was a year in which we executed several significant portfolio moves.

The year began with a $725 million tax efficient mechanical security divestiture which was followed by the acquisitions of the Craftsman Brand and Newell Tools, which combined, totaled approximately $2.9 billion. In doing so we added three iconic brands, Lenox, Irwin and Craftsman, with a far greater future growth potential.

Specific to Newell Tools, we continue to execute plans to integrate employees, suppliers and customers in to operations. We remain focused on and confident in our ability to capture the $80 million to $90 of cost synergies. Our commercial teams continue to refine plans to pursue revenue synergies as well.

In that regard we will move to global execution mode this year and begin to drive meaningful results in that area. And turning to Craftsman, we continue to make great progress on product development, supply chain deployment and commercial strategy.

The Tools & Storage folks along with our customers are in full bore execution mode of internally and with our partners and are confident that the mid-2018 rollout will be a successful relaunch of this incredibly strong brand, and additionally we made further substantive progress on the commercial strategy.

And Jeff Ansell will provide some more color on that in just a few moments. So as you can see, we remain on or ahead of our plans, as it relates to the integrations. In summary, 2017 was a really great year for Stanley Black & Decker. What a special performance by our 57,000 employees around the globe.

I thank them for their dedication, agility and a will to win. Because it is our people to whom we attribute these great accomplishments. They live our purpose everyday with incredible passion. 2018 looks to be shaping up to be another strong year, as we celebrate our 175th year in business on a high note.

We have generally supportive market conditions, with a few minor exceptions with in industrial, a strong pipeline of acquisitions, and organic growth initiatives developed in accordance with SFS 2.0.

We have a cost and productivity focus that supports margin expansion and is the bedrock of our operating system as well as a host of new opportunities related to our innovation activities. And as always we have to navigate known headwinds such as commodity inflation and other unknown pressures that may arise.

We feel that we position the company for a successful 2018 nonetheless. And now I will hand it over to Don Allan, who’ll walk you through segment performance, overall financials, and 2018 guidance.

Don?.

Thank you Jim and good morning everyone. I will now take a deeper dive in to our business segment results for the fourth quarter. Starting with Tools & Storage, revenue were up 26% in the quarter, with an impressive 11% organic growth, 13 points of acquisitive growth, and 2 points of currency.

The operating margin rate for this segment was robust ta 16.7% as benefits of volume leverage and productivity more than offset growth investments, commodity inflation and price to support normal holiday promotion, yielding a 50 basis points expansion versus prior year.

A strong organic growth and related share gains were experienced across each Tools & Storage region and [SBUs]. On a geographic basis, North America was 8% organically, with strong performances across all channels.

The US commercial market generated double-digit growth, US retail channels close to high single digit growth, and their industrial and auto repair markets generated mid-single digit growth. Additionally Canada contributed solid organic growth of 8%.

North America’s growth continue to be fueled by strong commercial execution and product introduction across the portfolio, including contributions from FlexVolt.

We continue to see very little cannibalization impacts from both FlexVolt launch, and are seeing more positive indication that this is stimulating incremental demand for our DeWalt 20 volt cordless power tool system, while also not competing growth in corded products.

Our shipments continue to be supported by strong demand in that channel, as North America POS was up mid-single digits and inventories within our major customers were also in line with prior year levels. Europe delivered another outstanding performance with 17% organic growth.

10 out of 10 markets grew organically with double digits performances in eight of the markets including the UK, France, Siberia, and Central Europe. The team continues to leverage our portfolio of brands and expand on our retail relationships to introduce sustained above market organic growth.

This performance exceeded our recent trend in mid-to-high single digit performances, as the region benefited from a strong holiday season. Finally, emerging markets delivered in other center an outstanding organic growth of 17%, with all regions delivering double digit performances.

Diligent pricing actions, continued e-commerce strength, and the ongoing [NPG] launch across the developing markets continue to support growth. Geographically, Latin America was very strong, headlined by double digit growth in Brazil, Argentina and Mexico, while Peru and Chile delivered high single digit results.

Our change to a direct selling model within Turkey and Russia continued to fuel exceptional growth for those countries. In addition, Korean, Japan, Indian and China posted notable double digit growth. Within the Tools & Storage SPUs all lines showed high single to double digit growth in the quarter.

The Power Tool and Equipment group was 13% organically, whereby professional Power and Tool at 15%. This SPU also benefited from new product introductions reflecting core innovations as well as (inaudible), along with continued strong commercial execution.

Our hand tools, accessories and storage organization generated 9% across our new product introductions and strong performances within the construction and industrial and markets. The accessories segment was up 14%, while hand tools and storage delivered 8% growth.

Another nice performance from this team, while they are also successfully continuing to integrate Lenox, Irwin and the Craftsman brand. So, in summary, truly an outstanding quarter and an outstanding year for the tools and storage organization. Jeff will provide some additional color on the full year in a few minutes.

Turning to industrial, this segment delivered 2% organic growth as Jim mentioned, slightly ahead of internal expectations. This topline performance contributed to an 80 basis points expansion in operating margin rate from volume leverage, productivity and cost control.

Engineered fastening posted 1% organic growth during the quarter, with mid-single digit growth in automotive and industrial, which more than offset lower electronics volume. Within automotive, growth was led by continued penetration gains within fasteners, enabling organic growth well in access of light vehicle production.

This more than offset the expected impact of lower self-piercing rivet system sales due to lower model rollover activity at our automotive customers. Finally, the growth within general industrial fastener market reflected supported market conditions and enhanced commercial actions, and they won share gain within our customer base.

The infrastructure businesses posted a strong quarter of 8% organic growth, hydraulic tools grew 19% as they continue to see the benefits from the execution of successful commercial actions as well as the support of market environment. This team continues to raise the bar for commercial excellence as all regions contributed to growth.

Meanwhile, oil and gas generated 3% organic growth in the quarter, driven by North America auto wells and inspection projects activities which more than offset a continued and expected decline in offshore project activity. The North American inspection business has been a relatively new driver for organic growth and our performance for oil and gas.

The teams commercial have grown this business from approximately 15 million in 2016 to nearly 50 million this year. Finally, the security segment delivered 2% organic growth during the quarter. North America organic growth was up 2% due to higher installation activity within conversion, security systems and higher product volumes within healthcare.

Europe’s organic growth was up 1% that strengthen the Nordic and UK was offset by anticipated ongoing weakness in France. In terms of profitability the segment declined 200 basis points year-over-year. The sale of the mechanical lock business drove approximately 90 basis points of this contraction.

The remaining 110 basis points decline was attributable to mix and modest levels of investment to support long term growth. The mix impact came about due to higher mix of installation revenues within CSS, lower software sales within healthcare and then [country mix] within Europe.

It is important note, that this operating margin was consistent with the performance of the business over the last two quarters. Security team remained focused on innovation along with commercial and operational effectiveness to position the business for revenue growth and margin expansion in 2018.

Let’s take a look at free cash flow performance on the next page. In addition to the strong P&L performance, we were able to drive significant working capital improvements during the quarter. Our full year cash flow performance was strong as we generated 967 million in 2016-17.

First in 2016, cash from operations declined 66 million, however this included a $261 million investment in working capital, which was $318 million higher than 2016 to support the strong, very strong level of organic growth, most notably within tools and storage. This impact was partially offset by higher cash earnings from the business.

In addition we saw our capital expenditures increase by 96 million in 2017, as we made investments to expand our manufacturing and distribution capacity, as well as investments to support acquisition integrations.

This performance resulted in a free cash flow as a percentage of net income to be approximately a 100% when excluding the net gain on divestitures right in line with our stated financial objectives. On a working capital term perspective, we delivered 8.9 turns in the fourth quarter, a decrease of 1.7 turns versus the prior year.

This decline reflects the impact of our recent portfolio activity, specifically the acquisition of both Lenox, Irwin and Craftsman brand. Excluding these acquisitions, turns were 10.6 times, consistent with our record 2016 performance. Working capital management remains a key pillar SFS 2.0 operating system.

We continue to drive working capital improvements across the company, with heavy focus on improving the performance of our recent acquisitions such as Newell Tools. We are confident in our ability to now bring our working capital turns back about 10 in the coming years.

I would now like to take a minute to provide some comments regarding the recently enacted US tax legislation and its respected impact to the fourth quarter 2017 and fully year of 2018.

We expect these changes to deliver a positive impact for the US economy and are very supportive of the improved worldwide cash mobility that comes with the territorial tax system, and finally encouraged by the benefits that come from the lower effective tax rate.

In the fourth quarter, we recorded a one-time $24 million net tax charge which is reflected in our GAAP EPS. This includes an estimated liability of $466 million to reflect the new territorial tool charge. As you know, this is payable over the course of eight years heavily weighted to 2022 and beyond.

Partially offsetting this is the positive impact from re-measuring our net deferred tax liability positions at these lower tax rates. Keep in mind the regulatory guidance surrounding this new tax bill continues to be refined and the fourth quarter charge is based on current estimates.

We finalize the overall impact during 2018 as we receive refined guidance from the US Treasury Department. Now turning to the impact of the 2018 effective tax rate. The full benefit of the decrease in the US tax rate from 35% to 21% is estimated to be approximately five points on our effective tax rate.

This benefit however is mitigated by approximately three points of tax costs on certain new provisions in the tax law as well as reduced benefits from previously allowed deductions. Our guidance for 2018 will be based on the tax rate of approximately 18%, which is a $0.20 EPS benefit versus 2017.

Hence the overall estimated impact from the new legislation is a two point benefit to our effective tax rate in 2018. Now let’s move deeper in to our 2018 guidance. Before I start this outlook is based on the first quarter adoption of two new accounting standards with respect to revenue recognition and pension accounting.

For financial modelling purposes, we released a supplementary 8K this morning to provide the impacts of operating results and business segment information for 2016 and 2017. The impacts from these changes has a modest negative impact on our operating margin rates and is relatively neutral to EPS.

We are targeting approximately 5% organic growth in 2018 which will result in an adjusted earnings per share range of $8.30 up to $8.50, which is an increase of approximately 13% versus the prior year at the mid-point, and we expect our free cash flow conversion to approximate a 100% again in 2018.

On a GAAP basis, we expect the earnings per share range to be $7.80 up to $8, inclusive of various one-time charges related to M&A. You can see on the left side of this chart, we expect the benefits from organic growth to generate $0.50 to $0.60 of EPS accretion.

This will be partially offset from $0.25 to $0.30 of net commodity inflation which includes approximately 150 million of commodity pressure, which will be offset by the impact from pricing actions that will begin to be reflected in the P&L as we move in to later stages of the second quarter.

Across the full year this reflects a 60% to 70% price recovery. Next we expect the net impacts of cost and productivity actions, acquisition accretion and a higher share count year-over-year to deliver a positive $0.45 to $0.50 in EPS.

As previously mentioned, we expect a tax rate of approximately 18% and 80% which will deliver as I mentioned $0.20 in EPS secretion. A few other housekeeping items I’d like to review that we referred to other miscellaneous guided matters.

The first of which we continue to anticipate approximately 50 million of core restructuring charges, which is consistent with the last few years. Second, we are forecasting approximately 155 million share outstanding for 2018. Finally, we expect the first quarter’s earnings to be approximately 16% of the full year performance.

This is about 130 basis points lower than last year. The primary factor driving a lower percentage of full year delivery is that we continue to expect elevated levels of commodity inflation particularly in tools, but do not expect to see the price recovery benefit until we get in to the later stages of the second quarter and beyond.

The net priced cost headwind for the first quarter is expected to be approximately $50 million. This impact is somewhat mitigated by lower below the line expenses year-over-year, due to one-time environment and pension charges that were taken in the first quarter of last year. Now let’s turn to the segment outlook on the right side of the page.

Organic growth within Tools & Storage is expected to be mid-single digit in 2018. There are multiple organic growth catalyst including core innovation, continued benefit from flex fold, the start of Lenox and Irwin revenue synergies, emerging market growth and perhaps most exciting, the Craftsman Brand roll out in the second half of the year.

Another positive factor is that we are generally seeing supportive markets across most geographies that we serve. We believe the topline growth will translate in to margin rate year-over-year.

As many of you know the rollout of the Craftsman brand will have somewhat of a governing factor on how far we can push margins forward in tools next year, as it will begin at the low line average profitability.

This dynamic is due to heavily relying on our outsource providers as we ramp up in the market place and overtime we will improve profitability as we enforce production. In the industrial segment, we expect low single digit decline in organic growth, with an easier fastening expect to see relatively flat organic performance.

We will see above market growth within automotive and industrial fasteners, but that will be offset by lower automotive system sales due to a decline in model rollovers at our automotive customers, and the residual comp issues within electronics most notably in 1Q.

In oil and gas we expect to see a double digit decline due to lower onshore project activity across the pipeline market. And then within hydraulic tools we expect to see continued growth from our successful commercial action.

With the teams proactive cost and productivity focused, we expect industrial operating margins to improve in this segment for the year. Finally in the security segment, we are expecting the organic to be up low single digits in 2018, as the team continues the commercial momentum from 2017.

This should translate in to improved operating margins year-over-year, as we drive our cost and service productivity focus. So in summary, we believe that we are taking the appropriate actions to position the company’s earnings growth and margin expansion in 2018, which is consistent with our long term financial targets.

We remain focused on free cash flow generation, acquisition, integrations and the rollout of the Craftsman Brand. So as you can see there’s a lot to be excited about in 2018. With that I would like to turn the call over to Jeff for a few key full year Tools & Storage highlights and then a brief update regarding (inaudible)..

Thank you Don. 2017 was a special year for our Tools & Storage business, including expansion of operating margins, while delivering 9% organic growth and 19% total growth.

This translates to $1.4 billion in growth with approximately half coming from organic initiatives and half from acquisitions, an accomplishment that used to take years rather than months to achieve.

We delivered market leading innovation, quality, and commercial excellence, and as such we are recognized with vendor awards from the largest customers across every channel and every geography. We expanded our exclusive FlexVolt system which offers the user the power of corded with the freedom of cordless.

This innovation spearheaded and accelerated dual growth across corded products, 20 volt cordless products and across the FlexVolt range itself. The Volt was the only provider with growth across corded products as well as low and high voltage cordless products concurrently. Our stable of brands continued to perform well on a global basis.

With Stanley Black & Decker, MAC Tools all up single digits, while [Turdo], Vidmar and DeWALT all expanded double digits. All of this occurred in consort with a successful integration of our second and fourth largest acquisition in our history, namely Irwin, Lenox, and Craftsman.

To close the book on 2017, we delivered growth across every region, every channel, every strategic business unit and with all of our top customers. We integrated a complex carve-out in dual tools and build Craftsman from the ground up, all concurrent with delivery of our largest organic growth year in history.

Looking to 2018 and as I Jim mentioned earlier, I’m also pleased to provide an update on our plans for the Craftsman brand going forward. During our October earnings call, we provided an update on the development of our Craftsman distribution strategy.

That update included confirmation that Ace, we’d support Craftsman across the hardware channel, and Lowes would support Craftsman across the home center channel. As we continue to develop and fine tune the strategy, we are pleased to confirm that we will also make Craftsman available via Amazon.

With support from leading companies like Lowes, Ace and Amazon, we expect to make Craftsman available to far more users than any time in its 90 year history. Overall the support of the iconic Craftsman brand today is overwhelming. Now I will turn the call back to Jim to wrap up today’s presentation. .

Thanks Jeff and great year, lots of exciting news and for the total company in summary 2017 was another strong year of execution and financial performance. And just to reflect one last time, 7% organic growth, 7% contribution from acquisitions, a 40 basis points expansion in operating margin rate, a record 14.8% and 14% EPS expansion.

We reshaped the portfolio with divestiture with mechanical security, purchase of new tools and the Craftsman brand and these transaction as Jeff said are on track and some of the exciting benefits from them are just on the horizon.

And ’18 is shaping up to be another strong year with 5% organic growth, 11% to 14% EPS growth and we are encouraged by the many, many organic growth catalyst across the company catalyzed by SFS 2.0 and a great execution team and also arising through our recent acquisitions.

And I’d like to thank my senior management team, our 57,000 associates and all our stakeholders including the investment community for your strong support as I reflect back on 2017, my first full year as CEO.

Our deep and agile leadership team along with our entire employee base remains focused, committed and supportive as we tackle 2018 to deliver strong, above market organic growth, with operating leverage and continue to successfully integrate these acquisitions and generate strong free cash flow.

And additionally, we are energized, our team is energized by our company’s purpose for those who make the world to achieve our 2022 vision and to strife to become known as one of the world’s leading innovators to deliver top quartile financial performance and to elevate our commitment support with social responsibility.

And Dennis we are now ready for Q&A..

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

[Operator Instructions] our first question comes from Rich Kwas with Wells Fargo Securities. You may begin. .

Jim on Craftsman first of all, can you shed any light on timing. How we should think about this as the rollout in terms of timing.

And then second, Don I didn’t see anything with regards to FX assumptions within the guidance and then which are comfort level with commodity cost at 150 that’s unchanged from what you talked about November and metals prices have gone up here recently, so just some additional thoughts there. Thanks. .

On Craftsman there’s a lot of variables on Craftsman. It’s interesting when you think about Craftsman, we brought a brand and maybe like three people along with it, and the work that the team has been doing and consumed for the last year or so is an incredible execution project, multi-dimensional etcetera.

The relationships as Jeff pointed out are going extremely well. On the commercial side, the supply chain is going extremely well and frankly we are super excited about it, as I am sure you can appreciate it. As for timing I’m going ask Jeff to comment on that, because he’s managing all these, juggling all these cause at the same time here.

And I’ll turn it over to you for a moment there Jeff on that one. .

Thanks Jim. The answer to the question, we’ve built a dedicated Craftsman team and split them up so that the core business continues to accelerate even while we build Craftsman from the ground up.

So we are developing all the new products to go with the brand that we acquired, and until that is complete we really can’t affectively do capacity planning, which is just beginning as we speak.

While we are committed to launching Craftsman in the second half of the year, customer roll-on plans will be dependent on completion of the customer demand plans along with our capacity plans to ensure supply. As stated earlier the support of this iconic brand is overwhelming, and our teams engage to support as much demand as soon as possible.

However, we’re just clear at this point that we will have greater demand than supply in 2018. .

I’ll take the second question that Rich tuck in there. On the commodity side of 150 million at this stage that would be representative of current prices. But our view is that would impact our P&L.

We’re like always we do contingency planning and we’re focused on if another 30 million or 50 million of commodity inflation came our way, how would we react. So that is factored in to our top process and we are continuously planning. The FX question for a long time it was a modest negative.

It slipped to a modest positive in particular because of what’s happened with the euro and the pound and it strengthened against the US dollar. So we have seen a little bit of an offset in emerging markets where the dollar has strengthened against some of the key emerging market currencies.

But right now it’s, day to day or week to week it’s kind of swinging between the net positive and a net negative. So relatively minor impact at this stage and that’s really something we’re calling out as a major assumption or guidance. But clearly it’s something we continue to focus on for contingency planning. .

Our next question comes from Michael Rehaut with JP Morgan. You may begin. .

I also just wanted to hit on a couple of short questions if possible. First in terms of the guidance, focusing on the share outstanding and the amount of free cash flow conversion, obviously you announced the acquisition which would take a portion of that.

But I was wondering around your thoughts on share repurchase, is that something that you do on and off, and with the strong free cash flow in 2018 absent, any additional acquisitions.

Is that something that we should be thinking about as you get in to the year end? And then just secondly on Craftsman, when should we expect sort of a shift towards insourcing some of the production that could cause a lift to the margins in that sales bucket. .

Sure. It’s Jim, I’ll take the first question and I’ll ask Don to tackle the second one, and you may get a little color from Jeff about that. So on repurchase; let’s just jump a kind of a little more in altitude to capital allocation in general.

And over the courses, as long as Don Allan, Jeff Ansell and I have been part of this company, we’ve had a capital allocation strategy, and giving 50% of our excess capital back to shareholders and then taking the other 50% and reinvesting it. And when you look at the dividend today is running a little over $300 million.

Again we’re throwing off 1 billion and that’s a growing number now.

So there’s definitely, when you look at that long term framework, there’s definitely room for repurchase and we historically have repurchased and we’ve done at times when we thought the stock was severely undervalued in general and occasionally we’ve also from time to time used it to manage the share count to kind of a neutral as employee benefit types of dilution occurred or also when we have significant stock price increases and that might create some additional share count.

So we’ve done all of that, but I think right now, with the acquisitions that we’ve made and recently now another 440 million in the pipeline that is really, really strong in the acquisition area.

In fact we’re executing integrations as effectively and quickly as we can in order to begin to create some organizational bandwidth for bringing some more acquisitions on. So with all that going on, repurchases are fairly low on our list of capital allocation priorities. But that could change.

We think of that over the long term and then we operate tactically in the short term based on a myriad of different observations and considerations. And so with that I’ll turn it over my colleagues here. .

I’ll start and just remind people of what we’ve said in that past about Craftsman and pulling that in to our supply chain and our manufacturing plants, and then I’ll let Jeff give a little more color around what we’re thinking over the next few years.

But since what we’ve said, that really would be kind of a three year program of insourcing a large amount of these Craftsman products in to our, not all of them, but a large amount of them in to our manufacturing and supply chain, and it would be something a bit of a gradual impact over that three year time horizon.

Jeff commented this morning that we still have a lot of work to do around capacity planning and we’re in the process of doing that. So we don’t have all the answer to it, but we do believe it will be a multi-year transition period.

But Jeff why don’t you put out a little more color on that?.

So if you consider what we have to do in the core business, side by side with that we are doing concurrently in the fastening business, we’ll launch about a thousand new products at our core business every year and we’ll make about 85% of all those products that we sell around the world.

So we are the most innovative tool company in the world and also we make the highest percentage of what we stock. That won’t change and it can’t change because our core business have to continue to perform well. Concurrent with that we have to bring up several thousand Craftsman products.

So imagine this, we launch a thousand products at our core, we have to launch 2000 Craftsman product around at the same time, and we’re capable of doing that. At the same time, we want to repatriate Craftsman manufacturing as much as possible for United States.

So we made an acquisition in 2017 of the pre-eminent metal tool manufacturing Waterloo that is a dedicated Craftsman manufacturing facility which is one of the things we committed to. So we will bring up that manufacturing of Craftsman products.

We will make more than half of those products in year one, and we’ll make probably more than half of these products in United States year one. But as Don said, it will take probably a 36 month period before we can get to the point where we are making the same percentage of the Craftsman product as we make in our core.

But I think over a three year period we can certainly get there and we can repatriate much of that to the US to stand behind the Craftsman Brand..

Our next question comes from Steven Winoker with UBS. You may begin. .

This is Chris for Steve. Just kind of back to the Craftsman topic, originally you guys have said that it was going to generate a $100 million of incremental sales every year.

I’m just kind of curious, like with a lot that’s going on in this year’s brand, clothing stores, how do you guys think about that number now in terms of the expectations going forward?.

We still feel like the opportunity is very significant. It’s very difficult to gauge at this stage any change that we should make to that assumption. That assumption was based on what we believe are very reasonable factors.

As we get deeper in to this tiny process that Jeff just described a few minutes ago, things will come to life when we indicate how quickly this ramp will go. But we are at a very early stage of this process and so at this point we are not looking to change anything around those assumptions.

But as we get deeper and as those roll up, and when Amazon goes online at some point at this stage, we’ll probably provide an updated view on what we think the Craftsman brand will do. But it’s far too early. We’re sitting in January to really alter those assumptions. .

Our first question comes from Tim Wojs with Baird. You may begin..

Nice job on Q4 and ’17. I guess just turning may be to the margins a little bit. I was worried if you could maybe give us a little bit of color on just the cadence within the tools business just given the price cost headwinds maybe in the first quarter and then how should we think about tools margins as you go through the year thanks. .

Sure. The first quarter clearly would be pressure because of that 50 million of kind of net to price commodity cost segment I mentioned. So for the tools business you will see a rate decline year-over-year in the first quarter because of that.

And we also had an outstanding first quarter last year from a rate perspective for tools, and so you have a difficult comp and then you have this dynamic I just described. So it will be down a little bit year-over-year because of that.

But as the year progresses, you’ll see that get better and better and probably modestly down in the second quarter, and the it will start to show improvement year-over-year in the third and the fourth quarter.

And it’s really because of that dynamic of commodity, inflation, hitting us pretty hard in the first half without the price recovery not coming until the later stages of the second quarter and back half of the year. .

Our next question comes from Scott Redner with Bellman & Associates. You may begin. .

My question was on the mid-teens POS noted at your large retailers in Tools & Storage, so for everyone to answer that. It seems like that that’s been a little slower than the prior quarters.

So just curious if you guys could provide some context there, whether there was significant comp last year or kind of how you guys are thinking about that relative to the optimistic commentary. .

What I said was mid-single digit POS, not mid-teens, although we would love mid-teens, but it was mid-single digits. And I look at POS, you can’t really go crazy analyzing it quarter-by-quarter, you have to look at it over a multi-quarter period of time.

And if you look at the North American business because I was commenting about POS and North America for certain customers, it was a little bit lower than the performance in North America, a couple of points.

However, when you look at it over the entire year, it’s very much in line with the performance of our revenue performance for North America versus the POS for the year. So that’s the best way to look at.

The other thing to remember is that we had really strong performance outside of some of our retailers in North America in the fourth quarter, low double digit performance in the commercial channel. So you have to keep that in mind as well, that’s really pushing that number up in a positive way.

So truly those two factors, and again like we mentioned before, quarter-to-quarter POS is an important statistic to look at, but its more about the trend that you’re seeing and what you’re experiencing over multi quarters. And Jeff is going to answer on that. .

In addition I would say we look at this, as Don said over a four quarter and time a rolling four quarter basis. And when looked at that way you can see clearly we’ve outgrown the market 2x.

And the other feedback that we’ve received is from the customers the largest of our top 10 customers; we received Vendor of the Year Award because our POS would outpace their overall growth in the category.

So what that would tell me is that POS is greater than the market, it’s greater than our largest customers, and weeks of supply are in line with prior year. So that says the things that we’re putting are going through the other end of the process in POS and we feel very good about global POS in total as much as we can gather. .

Our next question comes from Josh Pokrzywinski with Wolfe Research. You may begin. .

On the Craftsman commentary and Don not really deviating off that $100 million of incremental revenue a year. I guess as I look at your organic growth guidance and the EPS associated with that it seems like incremental margins knowing that raw material are different line items are a little light versus where you’d be historically.

If I assume that 100 million comes in at virtually no profitability, it still seems like it’s at league average or not.

Is there an indication that as Craftsman ramps up this year that the launch cost chips away that profitability in a more material way or I guess just kind of help us bridge how that base incremental margin looks a little lighter than usual. .

I think the best way to think about it is that, the leverage that we put in our guidance has a couple of factors in it.

Clearly one is, when you’re describing there’s a little bit of launch cost and the cost associated with Craftsman that has to be factored in in to that at lower profitability, and they certainly will be nice component of our organic growth in 2018.

The other thing to consider is that we have been on a steady program of investing for future growth in general as a company. And so as we get growth organically, we look at what investments we want to make in certain areas to continue to drive this growth over the mid-term and long term.

And so therefore the leverage numbers you see are a little bit lower because of that as well. So it’s really those two factors that are driving that dynamic that you’re describing. .

Our next question comes from Mike Wood with Nomura Instinet. You may begin. .

This is Mason on for Mike.

Can you give us an update on FlexVolt sales, how many FlexVolt skews have now been rolled out and what are the initial number of FlexVolt product expected in 2018?.

As I indicated in my presentation, I’ll kick this over to Jeff for additional commentary. We were in line with our expectation for FlexVolt. FlexVolt will be a contributor to our guidance next year in our organic growth at 5% in the company, and it continues to be a very positive performer for us. I’ll as Jeff to give a little more color on that. .

Yes, we couldn’t be happier with FlexVolt performance. If you look at the adoption rate, it’s still running at about 10x in terms of speed of adoption versus key technologies like brushless, which are fantastic. So that’s a great endorsement of what it does for the user.

At this point we average about 4.9 stars on ratings around the world and that’s 18 months or 15 months in to the process. That’s the highest ratings we’ve ever achieved.

So tremendous reviews, and what we’ve seen occur is as I kind of intimated in my remarks that we’ve seen our coated product that we make where we sell, which is a differentiator for us. We’ve seen that up mid-single digits, as the category was down about mid-single digits. Our 20 volt range has grown faster than any time in history.

At the same time, FlexVolt itself has grown dramatically. So if you add those three things together it says that there is a cannibalization to us there may be in the market, but its someone else’s cannibalization. We launched key new products in the fourth quarter and the second half of last year.

Things like cordless FlexVolt compressor that is revolutionary, its doing incredibly well, our new FlexVolt worm drive style saw that is absolutely converting corded products for the first time in history to cordless, with more follow in 2018.

The point I would make there though is, as we continue to launch FlexVolt, we will launch more and more industrial products as we can get more and more output and capacitites from these products.

But if you consider the fact that in the last year putting our FlexVolt batteries in to market to drive cross country a 150 times if it were an electric car, we are incredibly proud of what FlexVolt has done for us. .

Our next question comes from Rob Wertheimer from Melius Research. You may begin. .

Question is on 4Q margin Tools & Storage, and obviously you guys have got a lot going on under the (inaudible). Sequentially maybe it was a little bit lighter that we might have thought and you got commodity, and I wanted to ask if commodity was the driver of that.

If there’s any excess freights, any production tangles or just inefficiencies some extreme growth here seen or whether it’s just an investment?.

We were very pleased with the margin performance of Tools, as I mentioned 50 basis points improvement year-over-year, an incredibly strong organic growth. However, there’s a little bit of pressure on the margins for some of those things you mentioned.

Commodity inflation continues to be something that we experienced in the fourth quarter that rolled on to this year with really no price recovery in the fourth quarter. And then I would say that was modest rate increases associated with the high levels of organic growth, but nothing that really dramatically moved the needle in the business.

But I think the major factor was more in the commodity (inaudible)..

Our next question comes from Ken Zener with KeyBanc Capital Market. You may begin. .

The cannibalization, I think that’s the most incremental piece of information you’ve communicated today beyond your execution, might I say that. Well FlexVolt, if you’re growing to walk it almost means you are extending your brand awareness and your product is other people envelop your portfolio tools not someone else’s.

Why do you think and Jeff you gave us these numbers. But why do you think that’s happening, why didn’t you anticipate it, and most importantly what are the implications as you continue to kind of drive core battery in to what have been corded and/or what will be (inaudible) eventually. .

The FlexVolt program has been a tremendous brand development and brand halo that had an effect on what was already an amazingly strong brand in the professional but guaranteed tough kind of segment, and plus it just takes it to another level. So that’s one thing.

I think the second thing is, and I’ve said this before the installed base that we’re developing of batteries that work on 60 volt to FlexVolt tools and 20 volt tools. The FlexVolt battery obviously works on – is backwards compatible for the 20 volt.

So when you start to develop this installed base of batteries and all of a sudden you have the functionality, the user has the functionality to be able to run the tool effectively three times longer of a 20 volt tool that is a real kind of value driver and value proposition advantage for FlexVolt.

So I think that was sort of one of the things that we wondered how effective that impact would be. And I think what we’re finding out is it’s probably very, very significant. That’s my (inaudible) and then I’ll turn it over to Jeff and see if you have anything more you want to add to that. .

If you back in time to when Stanley Black & Decker’s came together, you would look at the volt which was a fantastic brand franchise that probably believe was in a period of decline given the technology change where it offered (inaudible) and the world had moved to lithium. Fast forward to where we are today and a couple of stats for you.

We now make the volt in the United States which the competitors cannot do in power tools. We expanded that the volt brand promise to tremendous hand tools to storage products, lasers, all great products.

We introduced our lithium ion answer in 2011 and ’12 and a stat that you wouldn’t be aware of; we’re now three times bigger than lithium that we ever were at our peak in [non-caths]. So that is an awesome statement. We’ve introduced brushless at the same time. Brushless is now bigger than [non-cath] ever was.

And on top of that we’ve improved our reliability, highest reliability in the industry, greatest number of innovations and excellence going on top of that, and you’re seeing what happens.

The user who always loved the volt now has so many more reasons to love, embrace and endorse it, and we’re seeing the level commitment to the volt has never been higher and we’re pleased with that. .

Our next question comes from David MacGregor with Longbow Research. You may begin. .

If I could just pick up for a clarification on Ken’s question, I wanted to ask another question on FlexVolt.

But regarding the cannibalization are we at a point where you can assume that the FlexVolt growing forward is largely incremental or is there a reason to believe that cannibalizations could be a future threat and emerge in some of the future points.

And my question more on the margins was, the FlexVolt is running below tool segment average, is that due to launch cost and heavier promotional expense etcetera.

And once we get beyond the large percentage margins on FlexVolt or expected to exceed the segment average or is this line expected to be at or below segment average margins for the foreseeable future. .

I’ll give the margins question to Don, but the way I’m thinking about FlexVolt at this point, it’s going to be a steady contributor to our organic growth as time goes on, and at this point it’s hard to really understand FlexVolt, versus 20 volt, versus (inaudible) and what are all the dynamics other than we know what’s already been said which is, it’s a positive mix of effects and in that regard I think it’s going to continue to be a real catalyst for above market organic growth for Stanley Black & Decker’s and for (inaudible)..

On the margin question on FlexVolt, I would say that we did have that period of time where we were below line average.

It probably extended a little longer than originally projected because some of the investments we were making in our marketing in particular to really make sure that people understood the technology and how tactful it is and clearly some of the comments you’re hearing from Jim and Jeff would indicate that added the chase.

So as we go in to 2018, we would expect it to be right around line average margins and it’s not something that would be negative to the margin or a dramatic positive at this stage. .

This concludes the Q&A session. I would now like to turn the call back over to Dennis Lange for closing remarks. .

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

Ladies and gentlemen, this concludes today’s conference. Thanks for your participation. Have a wonderful day..