Stanley Black & Decker Inc.

04/29/2026 | Press release | Distributed by Public on 04/29/2026 11:13

Quarterly Report for Quarter Ending April 4, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains statements reflecting the Company's views about its future performance that constitute "forward-looking statements" under the Private Securities Litigation Reform Act of 1995. There are a number of important factors that could cause actual results to differ materially from those indicated by such forward-looking statements. Please read the information under the caption entitled "Cautionary Statement Concerning Forward-Looking Statements."
Throughout this Management's Discussion and Analysis ("MD&A"), references to Notes refer to the "Notes To Unaudited Condensed Consolidated Financial Statements" in Part 1, Item 1 of this Quarterly Report on Form 10-Q, unless otherwise indicated.
BUSINESS OVERVIEW
Strategy
The Company is a global provider of hand tools, power tools, outdoor products and related accessories, as well as a leading provider of engineered fastening solutions. In recent years, the Company has re-shaped its portfolio through a series of divestitures. These divestitures reflect the Company's ongoing strategic commitment to simplify and streamline its portfolio to focus on its leading market positions in tools and outdoor, as well as engineered fastening systems.
The Company is guided by its mission to build a world-class branded industrial company, by solving end users' most pressing and complex challenges. The strategy to achieve this mission is anchored by three core imperatives: activating our brands with purpose, driving operational excellence, and accelerating innovation.
Activating our brands with purpose is rooted by the Company's brands standing for quality, safety and productivity. The Company is investing resources to continue to deepen connections with end users, with every product, solution and service aligned with their evolving needs.
Driving operational excellence is centered on continuous improvement to deliver stronger results, including more effective resource allocation with higher return on investment. The focus on driving annual net productivity will contribute to continued margin expansion and reinvestment into brand health and innovation.
Accelerating innovation is required to advance and expand the end-to-end workflow solutions that end users demand. The Company's platforming method enables faster speed to market and leverages modularity combined with specialization to deliver uncompromised productivity and value.
With a strengthened foundation and a more streamlined organization, focused on its core imperatives, the Company is well-positioned to drive performance towards its long-term financial targets.
In terms of capital allocation, the Company's top priority is funding organic growth investments that drive long-term value. The Company also remains committed, over time, to maintaining a strong and growing dividend and opportunistically repurchasing shares. The Company has deployed the vast majority of the net proceeds from the Consolidated Aerospace Manufacturing ("CAM") divestiture to reduce debt in the second quarter of 2026. The Company is now positioned to pursue capital allocation that accelerates shareholder value creation, which it expects to take the form of share repurchases.
Repurchases Of Common Stock
On April 23, 2026, the Board terminated the previous share repurchase program (the "April 2022 Program") and approved a new share repurchase program of up to $500 million in purchase price of shares of the Company's common stock ("the April 2026 Program"). The April 2026 Program will expire 36 months from April 23, 2026. The Company may repurchase shares under the April 2026 Program through open market purchases, privately negotiated transactions or share repurchase programs, including one or more accelerated share repurchase programs (under which an initial payment for the entire repurchase amount may be made at the inception of the program). Such repurchases may be funded from cash on hand, short-term borrowings or other sources of cash at the Company's discretion, and the Company is under no obligation to repurchase any shares pursuant to the April 2026 Program. The currently authorized shares available for repurchase under the April 2026 Program do not include approximately 3.6 million shares reserved and authorized for purchase under the Company's approved repurchase program in place prior to the April 2026 Program relating to a forward share purchase contract entered into in March 2015.
Repurchases Of Securities Other Than Common Stock
In October 2025, the Board of Directors approved repurchases by the Company of its outstanding securities, other than its common stock, up to an aggregate amount of $3.0 billion. No repurchases have been executed pursuant to this authorization to date.
Divestitures
On April 6, 2026, the Company completed the previously announced sale of its CAM business to Howmet Aerospace for $1.8 billion in cash. The Company has deployed the vast majority of the net proceeds to reduce debt in the second quarter of 2026. For the three months ended April 4, 2026, net sales and segment profit for Engineered Fastening included $117.0 million and $22.0 million, respectively, related to the CAM business. See below for further discussion of the Company's business segments and results.
Refer to Note Q, Divestitures, for further discussion.
Global Cost Reduction Program
In mid-2022, the Company launched a Global Cost Reduction Program comprised of a series of initiatives designed to generate targeted pre-tax run-rate cost savings of $2.0 billion by resizing the organization, reducing inventory, and transforming its supply chain with the ultimate objective of driving long-term growth, improving profitability and generating strong cash flow. The program was completed as of the end of 2025 and generated approximately $2.1 billion of pre-tax run-rate savings, exceeding its original cost savings target. These savings were partially redeployed to fund over $300 million of innovation and commercial investments through 2025 designed to accelerate organic growth.
Although the broader Global Cost Reduction Program has been completed, the Company continues to pursue targeted and strategic footprint actions to support the ongoing network transformation and reposition its supply chain, as necessary.
The charges associated with the execution of the Global Cost Reduction Program in 2025, as well as the charges related to targeted footprint actions in 2026, are reflected in the Non-GAAP adjustments detailed below in "Results From Operations." The expected charges for 2026 are reflected in the Company's full year estimate of Non-GAAP adjustments detailed below in "2026 Guidance".
Segments
The Company's operations are classified into two reportable business segments: Tools & Outdoor and Engineered Fastening. Both reportable segments have significant international operations and are exposed to translational and transactional impacts from fluctuations in foreign currency exchange rates.
Tools & Outdoor
The Tools & Outdoor segment is comprised of the Power Tools Group ("PTG"), Hand Tools, Accessories & Storage ("HTAS"), and Outdoor Power Equipment ("Outdoor") product lines.
The PTG product line includes both professional and consumer products. Professional products, primarily under the DEWALT® brand, include professional grade corded and cordless electric power tools and equipment including drills, impact wrenches and drivers, grinders, saws, routers, sanders, and concrete prep and placement tools as well as pneumatic tools and fasteners including nail guns, nails, staplers and staples, and concrete and masonry anchors. DIY and tradesperson focused products include corded and cordless electric power tools sold primarily under the CRAFTSMAN® and STANLEY® brands, and consumer home products such as household power tools, hand-held vacuums, and small appliances primarily under the BLACK+DECKER® brand.
The HTAS product line sells hand tools, power tool accessories and storage products primarily under the DEWALT®, CRAFTSMAN® and STANLEY® brands. Hand tools include measuring, leveling and layout tools, planes, hammers, demolition tools, clamps, vises, knives, saws, chisels, material handling, and industrial and automotive tools. Power tool accessories include drill bits, screwdriver bits, router bits, abrasives, saw blades and threading products. Storage products include tool boxes, sawhorses, cabinets and engineered storage solution products.
The Outdoor product line primarily sells corded and cordless electric lawn and garden products, including hedge trimmers, string trimmers, lawn mowers, pressure washers and related accessories, and gas powered lawn and garden products, including lawn tractors, zero turn ride on mowers, walk behind mowers, snow blowers, residential robotic mowers, hand-held outdoor power equipment, garden tools, and parts and accessories to professionals and consumers primarily under the DEWALT®, CRAFTSMAN®, CUB CADET®, BLACK+DECKER®, and HUSTLER® brand names.
Engineered Fastening
The Engineered Fastening segment is comprised of the Engineered Fastening business.
The Engineered Fastening business primarily sells highly engineered components such as fasteners, fittings and various engineered products, which are designed for specific applications across multiple verticals. The product lines include externally threaded fasteners, blind rivets and tools, blind inserts and tools, drawn arc weld studs and systems, engineered plastic and mechanical fasteners, self-piercing riveting systems, precision nut running systems, micro fasteners, high-strength structural fasteners, axel swage, latches, heat shields, pins, and couplings.
RESULTS OF OPERATIONS
On April 6, 2026, the Company completed the previously announced sale of its CAM business to Howmet Aerospace. This divestiture does not qualify for discontinued operations and therefore, the results of the CAM business are included in the Company's Consolidated Statements of Operations and Comprehensive Income for all periods presented.
Certain Items Impacting Earnings and Non-GAAP Financial Measures
The Company has provided a discussion of its results both inclusive and exclusive of certain gains and charges. The results and measures, including gross profit, SG&A, Other, net, Income taxes, segment profit, and corporate overhead, on a basis excluding certain gains and charges, free cash flow, organic revenue and organic growth are Non-GAAP financial measures. These Non-GAAP financial measures are defined and reconciled to their most directly comparable GAAP financial measures below. The Company considers the use of Non-GAAP financial measures relevant to aid analysis and understanding of the Company's results, business trends and outlook measures aside from the material impact of certain gains and charges and ensures appropriate comparability to operating results of prior periods. Supplemental Non-GAAP information should not be considered in isolation or as a substitute for the related GAAP financial measures. Non-GAAP financial measures presented herein may differ from similar measures used by other companies.
The Company provides expectations for the non-GAAP financial measures of full-year 2026 adjusted EPS, presented on a basis excluding certain gains and charges, as well as 2026 free cash flow. Forecasted full-year 2026 adjusted EPS is reconciled to forecasted full-year 2026 GAAP EPS under the section entitled "2026 Guidance" below. Consistent with past methodology, forecasted full-year 2026 GAAP EPS excludes the impacts of potential acquisitions and divestitures (unless otherwise noted), future regulatory changes or strategic shifts that could impact the Company's contingent liabilities or intangible assets, respectively, potential future cost actions in response to external factors that have not yet occurred, and any other items not specifically referenced under "2026 Guidance." A reconciliation of forecasted 2026 free cash flow to its most directly comparable GAAP estimate is not available without unreasonable effort due to high variability and difficulty in predicting items that impact cash flow from operations, which could be material to the Company's results in accordance with U.S. GAAP. The Company believes such a reconciliation would also imply a degree of precision that is inappropriate for this forward-looking measure.
The Company's operating results at the consolidated level as discussed below include and exclude certain gains and charges impacting gross profit, SG&A, Other, net, and Income taxes. The Company's business segment results as discussed below include and exclude certain gains and charges impacting gross profit and SG&A. Corporate overhead as discussed below includes and excludes certain gains and charges. These amounts for the first quarters of 2026 and 2025 are as follows:
First Quarter 2026
(Millions of Dollars) GAAP
Non-GAAP Adjustments2
Non-GAAP
Gross profit $ 1,157.3 $ 5.2 $ 1,162.5
Selling, general and administrative1
884.0 (7.7) 876.3
Earnings before income taxes 84.8 81.0 165.8
Income taxes3
25.2 18.4 43.6
Net earnings 59.6 62.6 122.2
Diluted earnings per share of common stock $ 0.39 $ 0.41 $ 0.80
First Quarter 2025
(Millions of Dollars) GAAP
Non-GAAP Adjustments2
Non-GAAP
Gross profit $ 1,120.8 $ 16.7 $ 1,137.5
Selling, general and administrative1
867.0 (22.0) 845.0
Earnings before income taxes 127.6 31.5 159.1
Income taxes3
37.2 7.5 44.7
Net earnings 90.4 24.0 114.4
Diluted earnings per share of common stock $ 0.60 $ 0.15 $ 0.75
1 Includes provision for credit losses
2 Refer to table below for additional detail of the Non-GAAP adjustments
3 Income taxes attributable to Non-GAAP adjustments are determined by calculating income taxes on pre-tax earnings, both inclusive and exclusive of Non-GAAP adjustments, taking into consideration the nature of the Non-GAAP adjustments and the applicable statutory income tax rates.
Below is a summary of the pre-tax Non-GAAP adjustments for the first quarters of 2026 and 2025.
(Millions of Dollars) 2026 2025
Supply Chain Transformation Costs:
Footprint Rationalization1
$ 5.2 $ 6.6
Material Productivity & Operational Excellence - 4.7
Other charges - 5.4
Gross profit $ 5.2 $ 16.7
Supply Chain Transformation Costs:
Footprint Rationalization1
$ 6.6 $ 6.1
Complexity Reduction & Operational Excellence2
- 10.0
Transition services costs related to previously divested businesses - 5.3
Other charges 1.1 0.6
Selling, general and administrative $ 7.7 $ 22.0
Income related to providing transition services to previously divested businesses $ - $ (6.8)
Deal-related costs and other (2.6) (1.9)
Other, net $ (2.6) $ (8.7)
Loss on sale of business $ 3.1 $ 0.3
Asset impairment charges3
22.7 -
Restructuring charges4
44.9 1.2
Non-GAAP adjustments before income taxes $ 81.0 $ 31.5
1 Footprint Rationalization costs in 2026 and 2025 primarily relate to site transformation and re-configuration costs. Facility exit costs related to site closures are reported in Restructuring charges.
2 Complexity Reduction & Operational Excellence costs in 2025 primarily related to third-party consulting fees to provide expertise in identifying business model changes and quantifying related cost savings opportunities within the Company's Engineered Fastening business, developing a detailed program and related governance, and assisting the Company with the implementation of actions necessary to achieve the identified objectives.
3 Asset impairment charges in 2026 relate to the write-down of assets associated with the exit of a Tools and Outdoor product line and related plant closure.
4 Refer to "Restructuring Activities" below for further discussion.
Below is a summary of the Company's operating results at the consolidated level, followed by an overview of business segment performance. Organic growth is utilized to describe the Company's results excluding the impacts of foreign currency fluctuations, acquisitions during their initial 12 months of ownership, divestitures, transfers of product lines between segments, and outdoor product line exits (as previously communicated).
Consolidated Results
Net Sales: Net sales were $3.846 billion in the first three months of 2026 compared to $3.745 billion in the first three months of 2025, an increase of 3%, which was driven by a 3% increase in price and a 3% increase from foreign currency, partially offset by a 3% decrease in volume. Tools & Outdoor net sales increased 2% compared to the first three months of 2025 as a 4% increase in price and a 3% increase from foreign currency was partially offset by a 5% decrease in volume. Engineered Fastening net sales increased 10% compared to the first three months of 2025, driven by a 6% increase in volume, a 3% increase from foreign currency, and a 1% increase in price.
Cost of Sales and Gross Profit: The Company reported cost of sales of $2.689 billion in the first three months of 2026 compared to $2.624 billion in the first three months of 2025. The year-over-year increase in cost of sales was primarily driven by tariff costs, volume deleveraging, and inflation, partially offset by operational cost improvements. Gross profit, defined as sales less cost of sales, was $1.157 billion, or 30.1% of net sales, in the first three months of 2026 compared to $1.121 billion, or 29.9% of net sales, in the first three months of 2025. Non-GAAP adjustments, which increased cost of sales and reduced gross profit, were $5.2 million, or 0.1% of net sales, for the three months ended April 4, 2026, and $16.7 million, or 0.5% of net sales, for the three months ended March 29, 2025. Excluding these adjustments, gross profit was 30.2% of net sales for the three months ended April 4, 2026, compared to 30.4% of net sales for the three months ended March 29, 2025. Gross profit as a percent of sales and adjusted gross profit as a percent of sales were fairly consistent year-over-year as operational cost improvements and higher pricing were largely offset by increased tariff expense, volume deleverage, and other inflation.
Selling, general and administrative: SG&A, inclusive of the provision for credit losses, was $884.0 million, or 23.0% of net sales, in the first three months of 2026, compared to $867.0 million, or 23.2% of net sales, in the first three months of 2025. Within SG&A, Non-GAAP adjustments totaled $7.7 million, or 0.2% of net sales, for the three months ended April 4, 2026. and $22.0 million, or 0.6% of net sales, for the three months ended March 29, 2025. Excluding these adjustments, SG&A was 22.8% of net sales for the three months ended April 4, 2026, compared to 22.6% for the three months ended March 29, 2025. SG&A as a percent of sales and adjusted SG&A as a percent of sales were fairly consistent year-over-year as strategic growth investments were balanced by disciplined and targeted cost management.
Distribution center costs (i.e. warehousing and fulfillment facility and associated labor costs) are classified within SG&A. This classification may differ from other companies who may report such expenses within cost of sales. Due to diversity in practice, to the extent the classification of these distribution costs differs from other companies, the Company's gross margins may not be comparable. Such distribution costs classified in SG&A amounted to $135.9 million and $129.0 million for the first three months of 2026 and 2025, respectively.
Other, net: Other, net totaled $41.9 million and $47.5 million in the first three months of 2026 and 2025, respectively. Excluding Non-GAAP adjustments, Other, net totaled $44.5 million and $56.2 million for the first three months of 2026 and 2025, respectively. The year-over-year decrease in Other, net, both inclusive and exclusive of Non-GAAP adjustments, is primarily driven by lower intangible amortization expense in 2026.
Loss on Sale of Business: During the first three months of 2026, the Company reported a pre-tax loss of $3.1 million related to the divestiture of a small business in the Tools & Outdoor segment. During the first three months of 2025, the Company reported a pre-tax loss of $0.3 million related to the divestiture of a small business in the Engineered Fastening segment.
Asset Impairment Charges: During the first quarter of 2026, the Company recorded a pre-tax impairment charge of $22.7 million related to a write-down of assets associated with the exit of a Tools and Outdoor product line and related plant closure.
Interest, net: Net interest expense was $75.9 million in the first quarter of 2026 and $77.2 million in the first quarter of 2025. The year-over-year decrease was primarily driven by lower interest expense partially offset by lower interest income, both due to lower interest rates.
Income Taxes: For the three months ended April 4, 2026, the Company recognized income tax expense of $25.2 million, resulting in an effective tax rate of 29.7%. Excluding the tax effect on Non-GAAP adjustments for the three months ended April 4, 2026, the Company recognized income tax expense of $43.6 million, resulting in an effective tax rate of 26.3%. These effective tax rates for the three months ended April 4, 2026 differ from the U.S. statutory tax rate of 21% primarily due to non-
deductible expenses, U.S. tax on foreign earnings, and losses for which a tax benefit is not recognized, partially offset by tax credits.
For the three months ended March 29, 2025, the Company recognized income tax expense of $37.2 million, resulting in an effective tax rate of 29.2%. Excluding the tax effect on Non-GAAP adjustments for the three months ended March 29, 2025, the Company recognized income tax expense of $44.7 million, resulting in an effective tax rate of 28.1%. These effective tax rates for the three months ended March 29, 2025 differ from the U.S. statutory tax rate of 21% primarily due to non-deductible expenses, losses for which a tax benefit is not recognized, and U.S. tax on foreign earnings, partially offset by remeasurement of uncertain tax position reserves and tax credits.
Refer to Note M, Income Taxes, for additional information on the impacts in interim periods of changes in the estimated annual effective income tax rate.
On December 20, 2021, the Organization for Economic Cooperation and Development ("OECD") published a proposal for the establishment of a global minimum tax rate of 15% ("Pillar Two"). The Pillar Two rules provide a template that jurisdictions can translate into domestic law, to assist with the implementation within an agreed upon timeframe and in a coordinated manner. Certain countries in which the Company operates have enacted legislation effective January 1, 2024, while other jurisdictions are in various stages of implementation.
On January 5, 2026, the OECD published a package introducing new safe harbors and a side-by-side system ("SbS") in relation to the Pillar Two global minimum tax rules. If enacted into law in each of the jurisdictions in which the Company operates following the indicated timeline, the SbS system would generally be expected to exempt the Company from the application of two of the three Pillar Two top-up taxes starting in 2026.
The Company has performed an assessment of the potential impact to its income taxes as a result of Pillar Two. The assessment of the potential impact is based on the most recent tax filings, country-by-country reporting, and financial statements of affected subsidiaries. Based on results of the assessment, the Company believes it can avail itself of the transitional safe harbor rules in most jurisdictions in which the Company operates. There are, however, a limited number of jurisdictions where the transitional safe harbor relief does not apply. The Pillar Two tax impact from these jurisdictions is expected to be immaterial to the Company's 2026 estimated annual tax rate. The Company continues to assess the potential impact of Pillar Two, including the SbS system, and monitor developments in legislation, regulation, and interpretive guidance in these areas.
On July 4, 2025, the U.S. government enacted the One Big Beautiful Bill Act ("OBBBA"), which includes a broad range of tax reform provisions affecting businesses, including extending and modifying certain Tax Cuts & Jobs Act provisions and accelerating the phase-out of certain Inflation Reduction Act incentives. The OBBBA includes provisions modifying net interest deduction limitations, expensing of U.S.-based research and development expenses, and tax depreciation methods, as well as international tax provisions modifying global intangible low-taxed income (GILTI), foreign-derived intangible income (FDII), base erosion and anti-abuse tax (BEAT), and foreign tax credits. The Company evaluated the impacts of the OBBBA and concluded that it did not have a material impact on the Company's consolidated financial statements in 2025 and does not expect a material impact to future income tax provisions. The Company will continue to assess the potential impact of the OBBBA and monitor developments in legislation, regulation, and interpretive guidance in this area.
Business Segment Results
The Company's reportable segments represent businesses that have similar products, services and end markets, among other factors. The Company utilizes segment profit which is defined as net sales minus cost of sales and SG&A inclusive of the provision for credit losses (aside from corporate overhead expense), and segment profit as a percentage of net sales to assess the profitability of each segment.
The Company's operations are classified into two reportable business segments: Tools & Outdoor and Engineered Fastening.
Tools & Outdoor:
Year-to-Date
(Millions of Dollars) 2026 2025
Net sales $ 3,335.6 $ 3,280.9
Segment profit $ 276.0 $ 289.2
% of Net sales 8.3 % 8.8 %
Tools & Outdoor net sales increased $54.7 million, or 2%, in the first three months of 2026 compared to the first three months of 2025 as a 4% increase in price and a 3% increase from foreign currency was partially offset by a 5% decrease in volume. Tools & Outdoor organic revenues decreased 1% primarily due to lower retail volumes in North America, which was mostly offset by increased sell-in ahead of the outdoor product spring season, strong performance in prioritized international markets, and higher rates of professional conversions within the U.S. commercial & industrial channel. Total revenue decreased 1% in North America and increased 11% and 6% in Europe and the rest of the world, respectively. Excluding the impact from foreign currency, organic revenue decreased 2% in North America, increased 1% in Europe, and remained flat in the rest of the world.
Tools & Outdoor Segment profit for the first three months of 2026 was $276.0 million, or 8.3% of net sales, compared to $289.2 million, or 8.8% of net sales, in the first three months of 2025. Excluding Non-GAAP adjustments, which primarily related to footprint actions in both periods, of $12.6 million, or 0.4% of net sales, in the first three months of 2026, and $25.0 million, or 0.8% of net sales, in the first three months of 2025, segment profit was 8.7% of net sales in the first three months of 2026 and 9.6% of net sales in the first three months of 2025. The year-over-year changes in segment profit as a percent of sales and adjusted segment profit as a percent of sales were primarily driven by growth investments and greater sales volume of lower-margin outdoor products. Higher pricing in the first three months of 2026 was largely offset by increased tariff expenses.
Engineered Fastening:
Year-to-Date
(Millions of Dollars) 2026 2025
Net sales $ 510.8 $ 463.7
Segment profit $ 60.9 $ 39.0
% of Net sales 11.9 % 8.4 %
Engineered Fastening net sales increased $47.1 million, or 10%, in the first three months of 2026 compared to the first three months of 2025, driven by a 6% increase in volume, a 3% increase from foreign currency, and a 1% increase in price. Engineered Fastening organic revenues increased 7% driven by robust aerospace growth and automotive outperforming the market, partially offset by a decline in industrial volume.
Engineered Fastening segment profit for the first three months of 2026 totaled $60.9 million, or 11.9% of net sales, compared to $39.0 million, or 8.4% of net sales, in the corresponding 2025 period. Excluding Non-GAAP adjustments of $0.2 million, or 0.1% of net sales, in the first three months of 2026, and $7.7 million, or 1.7% of net sales, in the first three months of 2025, which primarily related to costs associated with the supply chain transformation, segment profit amounted to 12.0% of net sales in the first three months of 2026 compared to 10.1% of net sales in the first three months of 2025. The year-over-year changes in segment profit as a percent of sales and adjusted segment profit as a percent of sales were driven by improved profitability in aerospace and higher volume and mix in automotive.
Corporate overhead:
The corporate overhead element of SG&A, which is not allocated to the business segments for purposes of determining segment profit, consists of the costs associated with the executive management team and expenses related to centralized functions that benefit the entire Company but are not directly attributable to the business segments, such as legal and corporate finance functions, as well as expenses for the world headquarters facility.
Corporate overhead amounted to $63.6 million and $74.4 million in the first three months of 2026 and 2025, respectively. Excluding Non-GAAP adjustments of $0.1 million in the first three months of 2026 and $6.0 million in the first three months of 2025, which primarily consisted of transition services costs related to previously divested businesses, the corporate overhead element of SG&A was $63.5 million and $68.4 million in the first three months of 2026 and 2025, respectively.
RESTRUCTURING ACTIVITIES
A summary of the restructuring reserve activity from January 3, 2026 to April 4, 2026 is as follows:
(Millions of Dollars) January 3,
2026 		Net Additions Usage Currency April 4,
2026
Severance and related costs $ 45.7 $ 40.2 $ (18.2) $ 0.2 $ 67.9
Facility closures and other 2.1 4.7 (4.7) - 2.1
Total $ 47.8 $ 44.9 $ (22.9) $ 0.2 $ 70.0
For the three months ended April 4, 2026, the Company recognized net restructuring charges of $44.9 million related to severance costs primarily associated with reorganizations of the Company's supply chain resources and a plant closure, as well as facility exit costs. The Company expects to achieve annual net cost savings of approximately $78 million by the end of 2027 related to the restructuring costs incurred during the three months ended April 4, 2026. The majority of the $70.0 million of reserves remaining as of April 4, 2026 is expected to be utilized within the next twelve months.
Segments:
The $44.9 million of net restructuring charges for the three months ended April 4, 2026 includes: $35.6 million in the Tools & Outdoor segment; $7.5 million in the Engineered Fastening segment; and $1.8 million in Corporate.
The anticipated annual net cost savings of approximately $78 million related to the 2026 restructuring actions include: $63 million in the Tools & Outdoor segment; $9 million in the Engineered Fastening segment; and $6 million in Corporate.
TARIFF POLICY IMPLICATIONS
On February 20, 2026, the U.S. Supreme Court issued a ruling invalidating tariffs imposed under the International Emergency Economic Powers Act ("IEEPA"). The ruling did not address potential refunds. The U.S. Court of International Trade ("CIT") has ordered the U.S. Customs and Border Protection ("CBP") to refund the collected IEEPA tariffs. The administrative process for seeking refunds of IEEPA tariffs previously paid remains under development and the CIT's order may be subject to U.S. government challenge. On April 20, 2026, the CBP launched the Consolidated Administration and Processing of Entries (CAPE) system for IEEPA refunds, which the CBP plans to implement through a phased development approach. There can be no guarantee that a refund, if received, will equal the full amount of IEEPA tariffs paid, and any refund may be subject to taxes and other adjustments or further legal, regulatory, or administration developments. Given these uncertainties, the Company has not recognized any benefit or asset related to potential IEEPA tariff refunds as of April 4, 2026. Following the U.S. Supreme Court's decision, the U.S. administration announced additional tariffs under Section 122 of the Trade Act of 1974 ("Section 122 tariffs") and could take action to implement additional tariffs in the future. The Company will continue to evaluate developments on tariff policy and the refund process related to IEEPA tariffs as new information becomes available.
In response to the U.S. administration's policy actions in 2025 and recent developments in 2026 discussed above, as well as potential policy changes in the future, the Company is continuing to execute its plan with the objective to safeguard gross margins and position the business for success with a focus on achieving its long-term financial objectives.
The Company's guiding principles and actions executed in response to tariff policy remain unchanged:
•Serve its end users and customers during a dynamic period;
•Minimize cost increases through supply chain moves with a focus on leveraging the Company's North American footprint and reducing China production for the United States by the end of 2026 or early 2027;
•Implemented price increases in 2025 with a long-term perspective and to protect cash flow; and
•Continue to proactively engage with the U.S. administration.
Refer to "2026 Guidance" below for more information.
2026 GUIDANCE
This discussion of certain guidance is intended to provide broad insight into the Company's near-term earnings and cash flow generation prospects. The Company is updating its guidance for 2026 diluted earnings per share on a GAAP basis to be in the range of $4.15 to $5.35, which is higher than prior guidance factoring in the expected gain on the recently closed CAM divestiture. The Company continues to expect diluted earnings per share excluding Non-GAAP adjustments to be in the range of $4.90 to $5.70. These ranges represent year-over-year growth of 79% and 13%, respectively, at the midpoint of each range as compared to 2025 performance. The Company is targeting free cash flow to be in the range of $500 to $700 million, which now includes projected taxes and fees associated with the recently closed CAM divestiture. Excluding such payments, free cash flow is expected to be in the range of $700 to $900 million, consistent with prior guidance.
The above guidance ranges exclude the results of the CAM business as of April 6, 2026, and the impacts of any potential future tariff refunds. Furthermore, the above guidance ranges assume that inflationary cost pressures resulting from the Middle East conflict, combined with inflation on battery metals and tungsten, will offset a temporary net tariff tailwind driven by the Supreme Court ruling on IEEPA tariffs, which were at higher levels than the Section 122 tariffs that have replaced them for a period of 150 days (through late July). The full year guidance ranges also assume an expectation that additional tariffs will take effect after the 150-day period at IEEPA-equivalent levels.
The difference between the guidance for 2026 diluted earnings per share on a GAAP basis and diluted earnings per share excluding Non-GAAP adjustments is approximately $0.35 to $0.75, consisting primarily of charges related to footprint actions and other cost actions, largely offset by the estimated gain on the recently closed sale of the CAM business.
FINANCIAL CONDITION
Liquidity, Sources and Uses of Capital: The Company's primary sources of liquidity are cash flows generated from operations and available lines of credit under various credit facilities.
Operating Activities: Cash flows used in operations were $388.8 million in the first quarter of 2026 compared to $420.0 million in the corresponding period of 2025. The year-over-year change is primarily driven by changes in working capital.
Free Cash Flow: Free cash flow, as defined in the table below, was an outflow of $447.3 million and $485.0 million in the first quarters of 2026 and 2025, respectively. The year-over-year change in free cash flow was due to the same factor discussed above in operating activities. Management considers free cash flow an important indicator of its liquidity and capital efficiency, as well as its ability to fund future growth and provide dividends to shareowners, and is useful information for investors. Free cash flow does not include deductions for mandatory debt service, other borrowing activity, discretionary dividends on the Company's common stock and business acquisitions, among other items.
Year-to-Date
(Millions of Dollars) 2026 2025
Net cash used in operating activities $ (388.8) $ (420.0)
Less: capital and software expenditures (58.5) (65.0)
Free cash flow $ (447.3) $ (485.0)
Investing Activities: Cash flows used in investing activities totaled $55.5 million and $57.7 million in the first quarters of 2026 and 2025, respectively, primarily due to capital and software expenditures of $58.5 million and $65.0 million, respectively.
Financing Activities: Cash flows provided by financing activities totaled $508.2 million in the first quarter of 2026, primarily driven by net short-term commercial paper borrowings of $1.145 billion, partially offset by payments on long-term debt of $500.1 million and cash dividend payments on common stock of $126.0 million. Cash flows provided by financing activities totaled $502.0 million in the first quarter of 2025, primarily driven by net short-term commercial paper borrowings of $1.136 billion, partially offset by payments on long-term debt of $500.0 million and cash dividend payments on common stock of $124.5 million.
Credit Ratings & Liquidity:
The Company maintains investment grade credit ratings from the major U.S. rating agencies on its senior unsecured debt (S&P BBB+, Fitch BBB+, Moody's Baa3), as well as its commercial paper program (S&P A-2, Fitch F2, Moody's P-3). There were no changes to any of the Company's credit ratings during the first quarter of 2026. Failure to maintain investment grade rating levels could adversely affect the Company's cost of funds, liquidity and access to capital markets, but would not have an adverse effect on the Company's ability to access its existing committed credit facilities.
Cash and cash equivalents totaled $333.7 million and $280.1 million as of April 4, 2026 and January 3, 2026, respectively, which was primarily held in foreign jurisdictions.
As a result of the Tax Cuts and Jobs Act (the "Act"), the Company's tax liability related to the one-time transition tax associated with unremitted foreign earnings and profits totaled $2 million at April 4, 2026. The Act permits a U.S. company to elect to pay the net tax liability interest-free over a period of up to eight years.
In March 2026, the Company redeemed its $500 million 3.40% notes, at maturity.
The Company has a $3.5 billion commercial paper program which includes Euro denominated borrowings in addition to U.S. Dollars. As of April 4, 2026, the Company had commercial paper borrowings outstanding of $1.7 billion, of which $547.6 million in Euro denominated commercial paper was designated as a net investment hedge. In the second quarter of 2026, the Company utilized the vast majority of the net proceeds from the CAM divestiture to repay commercial paper borrowings. As of January 3, 2026, the Company had $605.6 million of commercial paper borrowings outstanding, of which $555.6 million in Euro denominated commercial paper was designated as a net investment hedge. Refer to Note H, Financial Instruments, for further discussion.
In June 2024, the Company amended and restated its existing five-year $2.5 billion committed credit facility with the concurrent execution of a new five year $2.25 billion committed credit facility (the "5-Year Credit Agreement"). Borrowings under the 5-Year Credit Agreement may be made in U.S. Dollars, Euros or Pounds Sterling. A sub-limit of an amount equal to the Euro equivalent of $800.0 million is designated for swing line advances. Borrowings bear interest at a floating rate plus an applicable margin dependent upon the denomination of the borrowing and specific terms of the 5-Year Credit Agreement. The Company must repay all advances under the 5-Year Credit Agreement by the earlier of June 28, 2029 or upon termination. The 5-Year Credit Agreement is designated to be a liquidity back-stop for the Company's $3.5 billion U.S. Dollar and Euro commercial paper program. In June 2025, the 5-Year Credit Agreement was amended to include the covenants listed below. As of April 4, 2026 and January 3, 2026, the Company had not drawn on its five-year committed credit facility.
In June 2025, the Company terminated its 364-Day $1.25 billion committed credit facility ("the 2024 Syndicated 364-Day Credit Agreement") dated June 2024. There were no outstanding borrowings under the 2024 Syndicated 364-Day Credit Agreement upon termination and as of December 28, 2024. Contemporaneously, the Company entered into a new $1.25 billion syndicated 364-Day Credit Agreement (the "2025 Syndicated 364-Day Credit Agreement") which is a revolving credit loan. The borrowings under the 2025 Syndicated 364-Day Credit Agreement may be made in U.S. Dollars or Euros and bear interest at a floating rate plus an applicable margin dependent upon the denomination of the borrowing and pursuant to the terms of the 2025 Syndicated 364-Day Credit Agreement. The Company must repay all advances under the 2025 Syndicated 364-Day Credit Agreement by the earlier of June 22, 2026 or upon termination. The Company may, however, convert all advances outstanding upon termination into a term loan that shall be repaid in full no later than the first anniversary of the termination date provided that the Company, among other things, pays a fee to the administrative agent for the account of each lender. The 2025 Syndicated 364-Day Credit Agreement serves as part of the liquidity back-stop for the Company's $3.5 billion U.S. Dollar and Euro commercial paper program. As of April 4, 2026, the Company had not drawn on its 2025 Syndicated 364-Day Credit Agreement.
The 5-Year Credit Agreement and the 2025 Syndicated 364-Day Credit Agreement, as described above, contain customary affirmative and negative covenants, including but not limited to, maintenance of an interest coverage ratio. The interest coverage ratio tested for covenant compliance compares adjusted Earnings Before Interest, Taxes, Depreciation and Amortization to adjusted net Interest Expense ("Adjusted EBITDA"/"Adjusted Net Interest Expense"). The Company must maintain, for each period of four consecutive fiscal quarters of the Company, an interest coverage ratio of not less than 3.50 to 1.00, provided that the Company is only required to maintain an interest coverage ratio of not less than 2.50 to 1.00 for any four fiscal quarter period ending on or before the end of the Company's second fiscal quarter of 2026. For purposes of calculating the Company's compliance with the interest coverage ratio, the Company is permitted to increase EBITDA by an amount equal to the Applicable Adjustment Addbacks (as defined in the 2025 Syndicated 364-Day Credit Agreement), provided that the sum of the Applicable Adjustment Addbacks incurred in any four consecutive fiscal quarter periods ending on or before the end of the Company's second fiscal quarter of 2026 shall not exceed $250,000,000 in the aggregate.
In March 2015, the Company entered into a forward share purchase contract with a financial institution counterparty for 3,645,510 shares of common stock. The contract obligates the Company to pay $350 million, plus an additional amount related to the forward component of the contract. In September 2025, the Company amended the forward share purchase contract and updated the final settlement date to June 2028, or earlier at the Company's option.
Refer to Note G, Long-Term Debt and Financing Arrangements, for further discussion of the Company's financing arrangements.
OTHER MATTERS
There have been no changes in the Company's critical accounting estimates during the first quarter of 2026. Refer to the "Other Matters" section of Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's Annual Report on Form 10-K for the year ended January 3, 2026 for a discussion of the Company's critical accounting estimates.
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