Stanley Black & Decker, Inc. (SWK)

SWK 
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Stanley Black & Decker, Inc. (SWK)

February 21, 2013 10:35 am ET

Executives

James M. Loree - President and Chief Operating Officer

Jamie Ramirez - President of Construction & DIY Latin America

Analysts

Stephen Kim - Barclays Capital, Research Division

Presentation

Stephen Kim - Barclays Capital, Research Division

Well, thank you very much for joining us. Up next, we have Stanley Black & Decker. And we are very pleased to be -- I am very pleased to be joined by Jim Loree, the President and COO; as well as Jamie Ramirez, who is the Senior Vice President and Head of Emerging Markets. For those of you who don't know me, I am Stephen Kim, with Barclays housing analyst and building products analyst. I've been covering Stanley Black & Decker, and one way to perform for quite a long time, almost 2 decades. I think Jamie, you have me beat by about a year. Jaime came into the business in 1991.

As people are coming in and finding their seats, I wanted to start off with a few audience response questions to get things going. So, we're going to start off with a couple of basic ones. I think most of you have done this before, but there's a connector in front of you. And the question before you right now is, do you currently own a stock? And you can answer with either a yes, we're overweight; yes, equal weight; yes, underweight; or no.

[Voting]

Okay, so we have a lot of opportunity here. With about 70% still yes on Stanley Black & Decker. And then the second question is, what's the general bias towards the stock right now? Positive, negative or neutral?

[Voting]

And a pretty good split there between positive and neutral, so that's encouraging. And then lastly, in your opinion, on what multiple of 2013 earnings should Stanley trade?

[Voting]

Okay. Well it seems to be a pretty consensus there around 13% to 15%. Well, that's great. Well, thank you very much for that. We're going to get started here with a few basic questions. And of course, we will leave plenty of opportunity for your own questions. But Jim, I wanted to first ask if you could give a brief overview of the industrial businesses you're in because you're obviously in quite a number of them, and I think it might be helpful to start there.

James M. Loree

Sure. There's 3 basic elements of the Industrial businesses. The total segment's about 25% of the company, roughly. Company is $11 billion, expected to be about $11 billion this year. And the first one is the Industrial & Automotive Repair tools segments. Think Snap-on. If you want to look for a comp for that one, that's the comp. The second piece is called Emhart Teknologies, and they're in the Engineered Fastening business. And they provide engineered fastening solutions, equipment and fasteners to the automotive industry, and as well as aerospace and electronics and general manufacturing. And then the final element is the Hydraulics our CRC-Evans business, which together comprise the infrastructure segment or subsegment. And that is a growth platform for the company, meaning that we expect to invest growth capital into the infrastructure segment. Today, it's a relatively small. It's about a $350 million business combined. But the CRC business does automated welding and coating and inspection for both the onshore and offshore pipeline industry. And the Hydraulics business does a lot of heavy hydraulic attachment for those types of things, for scrap reclamation and items of that nature.

Stephen Kim - Barclays Capital, Research Division

Okay. And could you give us an idea of the common thread between these business, particularly as they may relate to your Security business or your CDIY. To what degree you see synergy opportunities there?

James M. Loree

I think we're the only tool company in the world that has both industrial tools and construction and DIY tools, which gives us a tremendous advantage in the marketplace. Because especially in the emerging market place, because the channels tend to get very blurred when you get into the emerging markets between the industrial tools and the construction DIY tools. So that's a simple and most obvious one. I'd say all of the Industrial businesses for Stanley Black & Decker, probably similar to most Industrial businesses in the universe, really provide one common thread, which is productivity and value creation for the end user. And I think those are very consistent threads across our businesses.

Stephen Kim - Barclays Capital, Research Division

Great. And then you changed -- the company has changed a lot. Actually, you have helped engineer a lot of that change yourself. And over the last 5 years, I would say that the change has been pretty profound. What's in store for the next 5 years? How do you see Stanley Black & Decker as a company in 5 years?

James M. Loree

I think it's important to understand the historical context. When I joined the company in 1999, we were basically a $2 billion company. We had $100 million a year of cash flow. We essentially sold tools and hardware to the home centers and the mass merchants and a few other activities. But it was pretty focused in that particular area. And over the course of the last 13 years or so, we've converted that into an $11 billion company, which is about half construction and DIY, about 25% Security and 25% Industrial. Those are kind of round numbers. And so we're differently much more of a diversified company, but we are the largest branded tools franchise in the world. And we have some incredibly powerful brands such as Stanley, Black & Decker, DeWalt, PORTER-CABLE, Powers Fasteners. I mean, just really a "Who's who?" of brands in the tool industry. We have the -- as I said, both channels, Construction DIY and Industrial. And we have a tremendous geographic footprint across the world, which means we stand to benefit from the globalization of the emerging markets and so on.

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