Stanley Black & Decker (NYSE:SWK) reported first-quarter financial results on Wednesday. The transcript from the company's first-quarter earnings call has been provided below.
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Summary
Stanley Black & Decker reported a 3% revenue increase for Q1, outperforming expectations, with adjusted earnings per share at $0.80, exceeding the high end of guidance.
The company completed the sale of its aerospace fasteners business, using proceeds primarily for debt reduction, and plans to focus on share repurchases.
Tools and outdoor segment saw a 2% revenue increase, with a 4% pricing benefit offsetting volume pressures; engineered fastening grew 10% with strong performance in aerospace and automotive.
The company maintains its 2026 guidance for adjusted earnings per share between $4.90 and $5.70, expecting flat total revenue with low single-digit organic growth.
Management emphasized strategic focus on brand activation, operational excellence, and innovation, with positive early results from efforts in the DeWalt and Stanley brands.
Full Transcript
OPERATOR
Welcome to the Stanley Black & Decker first quarter Earnings Call. My name is Shannon and I'll be your operator for today's call. At this time, all participants are in a listen only mode. Following the company's prepared remarks, we will conduct a Q and A session to ask a question of the management team. Please press star11 on your phone at any time you will hear an automated message advising you are in the queue. To withdraw yourself from the queue, please press star 11 again. Please note that this conference is being recorded. I will now turn the call over to the Vice President of Investor Relations, Michael Whirly. Mr. Whirly, you may begin.
Michael Whirly (Vice President of Investor Relations)
Good morning everyone and thanks for joining us for our first quarter earnings call. With us today are Chris Nelson, President & CEO, and Patrick Hallinan, Executive Vice President, CFO & Chief Administrative Officer. Our earnings release which was issued earlier this morning and a supplemental presentation which we will refer to are available on the IR section of our website. A replay of today's webcast will also be available. Beginning around 11:00am Eastern Time this morning, Chris and Pat will review our first quarter results along with our updated outlook for 2026 followed by a Q and A session. During today's call, we will be making some forward looking statements based on our current views. 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's therefore possible that actual results may materially differ from any forward looking statements that we might make today. We direct you to the cautionary statements in the 8-K that we filed with our press release and in our most recent 34 Act filings. Additionally, we may also refer to non-GAAP financial measures. during the call for applicable reconciliations to the related GAAP financial measures. and additional information. Please refer to the appendix of the supplemental presentation and the corresponding press release which are available on our website. I will now turn the call over to our President and CEO, Chris Nelson.
Chris Nelson (President and CEO)
Thank you Michael and thank you all for joining us today. I am pleased to report that Stanley Black & Decker delivered a solid start to the year, outperforming our expectations on the top and bottom lines in the first quarter as we demonstrated continued progress on our strategic priorities. We are confident in our strategy and in the team's ability to continue to execute and deliver Results. For the first quarter, revenue was up 3% overall and flat organically. This was ahead of our expectations, driven primarily by a well executed outdoor products preseason. Our adjusted gross margin rate of 30.2% was down 20 basis points year over year. Essentially unchanged adjusted EBITDA margin of 9.2%. was down by 50 basis points year over year slightly ahead of our planning assumptions for the period. Adjusted earnings per share were $$0.80, $0.20 ahead of the high end of our first quarter guidance range of $0.55 to $0.60. Pat will unpack this further later in the call. Additionally, on April 6 we announced the successful completion of the previously disclosed agreement to sell our aerospace fasteners business. This portfolio change is consistent with our strategy to focus on our core business and commitment to enhancing shareholder value. The vast majority of the approximately $1.6 billion. of net proceeds have already been applied towards debt reduction. We are now positioned with a stronger balance sheet and have unlocked the ability to deploy capital to accelerate shareholder value creation. We expect our capital allocation strategy to be biased towards share repurchases which the Board has authorized. Turning to our first quarter operating performance by segment, I'll start with Tools & Outdoor first quarter revenue was approximately $3.3 billion. up 2% year over year. Organic revenue was down 1% as a 4% benefit from targeted pricing actions was more than offset by 5% of volume pressure currency was a 3% benefit in the quarter. As we discussed in February, our base case assumption was that top line volatility, especially within the North American retail channel would persist through at least the first quarter. Consistent with our expectations, competitors continued to take price and we honed our approach to promotions for select products. Also, as expected, our results this quarter reflected a decrease in volume primarily driven by lower retail activity in North America. This was partially offset by a strong initial sell in for outdoor products and as we approach the peak selling season, international growth in prioritized investment markets such as Eastern Europe, United Kingdom, and Latin America, was an encouraging outcome. Additionally, increased sales generated by professional end user Demand in the U.S. commercial and industrial channel indicates that our growth investments are building momentum in the market. Tools & Outdoor first quarter adjusted segment margin was 8.7% which was consistent with our plan. Now for additional context on the top line performance by product line in first quarter power tools organic revenue declined 2% and hand tools, accessory and storage organic revenue declined 3% which were both driven by factors consistent with the broader segment performance. Outdoor organic revenue increased 1% driven by encouraging preseason sales for spring 2026, particularly for ride on and zero turn mower offerings. While we are still in the early stages of the outdoor season, our performance thus far reflects strong execution by our team including effective order fulfillment now tools and outdoor performance by region in North America, organic revenue declined 2% reflecting trends we discussed for the overall segment, the US commercial and industrial channel delivered high single digit organic growth, demonstrating a strong return on our targeted investments in brand activation for the professional end user. I'll talk more about this in a moment. Point of sale Performance in the quarter was aligned with our expectations and broadly consistent with reported home improvement consumer credit card data. In Europe, organic revenue was up 1%. Growth in prioritized investment markets including the United Kingdom, and Eastern Europe was partially offset by softer market conditions in other parts of the region. The rest of world organic revenue was flat with double digit growth in Latin America, offset by pockets of market softness in Asia and the Middle East. Turning now to engineered fastening, first quarter revenue grew 10% on a reported basis and 7% organically. Revenue growth was comprised of a 6% volume increase, 1% higher pricing and a 3% currency tailwind. The aerospace business continued its strong performance achieving 31% organic growth in the quarter. The Automotive business delivered 4% organic growth, outpacing the market driven by strong North America demand and strength in global fastener Systems for auto OEMs, general industrial fasteners. Organic revenue declined low single digits. Adjusted segment margin for Engineered Fastening was 12% in the quarter. Year over year expansion of 190 basis points was primarily due to improved profitability in aerospace and favorable automotive volume and mix overall. Through disciplined execution, both the tools and outdoor and engineered fastening segments delivered revenue on a reported and organic basis that was better than expected despite the challenging operating environment. Segment margin rates were also in line with expectations this quarter through disciplined execution, operational cost improvements and targeted refinements to promotional strategies, we believe the results are evidence of the momentum we're building. We have conviction in our strategy and are confident that we are taking the actions required to ensure sustainable growth and shareholder value creation into the future. Thank you to our team for maintaining their customer centric approach and for advancing our vision of building a world class branded industrial company. Our ambition, is anchored by three core strategic purposeful brand Activation, Operational Excellence and accelerated innovation. I would like to share a few updates regarding how our efforts are taking root starting with DeWalt. You've heard us talk many times about safety as a core end user priority and value proposition of the products we deliver. Our Perform & Protect lineup is designed to provide product features to defend against dust inhalation, loss of torque control and tool vibration without sacrificing the performance that professional end users demand. Dewalt has over 200 Perform & Protect solutions that are attracting professional end users and converting them into users of the DeWalt platform.. These types of end user oriented solutions combined with our ongoing investments to expand our field service and sales teams contributed to the strong commercial and industrial performance in the quarter, including professional contractors fully converting from competitor offerings to DeWalt Cordless Solutions and lead construction contractors outfitting large new project job sites with DeWalt. In addition, last quarter we indicated that the Stanley brand. was positioned to return to growth in 2026. I'm pleased to share that our targeted investments are supporting new listings largely driven by the initial phase of our product refresh and new product introductions. We are seeing green shoots and are on pace to return to growth with the Stanley brand. by mid year. Our expanded field team and trade specialists serving the professional end user are driving meaningful traction with our global channel partners building demand as we grow together I will now pass the call to Pat to discuss progress on a few key performance metrics and to outline our 2026 guidance.
Patrick Hallinan
Thank you Chris and good morning to everyone joining us today. Before we jump into the guidance, let me start by providing a bit more detail on our adjusted EPS outperformance. in the first quarter, which as Chris noted was $0.20 above the high end of our guidance range. From February above the line operating outperformance made up about half of the outperformance driven by outdoor. The remainder of the outperformance came from below the line items, most of which didn't change our full year view on those items materially. For example, our forecasted first quarter tax rate was 30% and that landed at 26% due to the timing of a discrete tax item. But we have not changed our view on the full-year tax rate of 19%. Now let me walk you through our updated guidance and other assumptions for 2026. There are a few key updates embedded in this guidance you should be aware of. First, the CAM deal. closed on the early side of the anticipated window.. Practically that resulted in us removing CAM's expected second quarter contribution from our guidance. That one quarter adjustment lowers our expected engineered fastening segment pre tax profit by about $15 million, but it also lowers second quarter interest expense, by a similar amount, meaning it has essentially no impact on second quarter or full year adjusted EPS guidance. Second, there have been numerous tariff policy changes since our last earnings call which prompted new assessments and assumptions. We expect that all in these tariff policy changes and our updated tariff assumptions equate to net tailwind for us this year on a gross basis compared to our assumptions at the beginning of the year. In the near term we have a temporary period of lower tariffs since the replacement Section 122 tariffs are lower than the former IIPA tariffs. Our base case assumption is that new Section 301 tariffs will be introduced at the same level as the old IIPA tariffs, which means our underlying tariff costs would be virtually the same by August as they were prior to the Supreme Court ruling in February. This is our current expectation, but that is subject to change as policy is finalized and we will update our assumptions as appropriate. Third, since the start of the conflict in the Middle east, we have seen inflationary cost pressures in resins and freight. Last, we have also seen meaningful inflation in recent months in battery, metals and tungsten, which is applied to the tips of our saw blades and drill bits for increased durability and heat resistance. We believe the combined impact from these inflationary pressures roughly offsets the benefit from the tariff tailwind in the year. Moving on to our actual guidance metrics for 2026, we expect adjusted earnings per share to be in the range of $4.90 to $5.70, representing growth of 13% at the midpoint and remaining consistent with our original adjusted earnings guidance. We now anticipate total company revenue will be about flat compared to the last year, which is slightly lower than prior guidance. Because of the removal of CAM from the second quarter expectations, we still expect organic revenue to grow by a low single digit percentage year over year. This outlook reflects on our focus on pivoting to growth and our confidence in seizing the share opportunities across our key markets. We continue to expect 50 to 100 basis points of full year benefit from foreign exchange which should predominantly land in the first half. Moving to gross margin expectations,, we anticipate adjusted gross margins will expand by approximately 150 basis points year over year, consistent with prior guidance. This is supported by top line expansion, price, ongoing tariff mitigation, efforts and continuous operational improvement. We believe we are firmly on track to meet this target and I will talk more about it on the next slide. We plan to continue growth investments in 2026 to further advance our robust innovation pipeline and fuel market activation with the goal of enhancing brand health and accelerating organic growth. We expect SG&A as a percentage of sales to remain around 22%. We will continue to manage SG and a thoughtfully allocating capital to strategic investments that position the business for long term growth. Free cash flow, is expected to be in the range of 500 to 700 million, including projected taxes and fees associated with the CAM divestiture,. Excluding such payments, Free cash flow, is expected to be in the range of 700 to 900 million. Consistent with our original guidance, our free cash flow performance is expected to be accomplished through a disciplined and efficient approach to working capital management, progressing inventory towards pre pandemic norms while remaining attentive to our ongoing tariff mitigation, and footprint optimization initiatives. We were pleased to deliver progress on inventory reduction in the first quarter. Looking at our segments we are planning for organic revenue growth and segment margin expansion in both segments. Tools and Outdoor is still expected to deliver low single digit organic growth in 2026 led by market share gains in what we anticipate will be a roughly flat market. Organic revenue in the second quarter is expected to be up in a low single digit range as our recent commercial efforts continue to gain traction and as we start lapping the promotional disruptions that started in the second quarter last year. Throughout the rest of 2026 we also expect to see sales trends improve from our new product launches and commercial initiatives with a focus on outperforming the market. Adjusted segment margin is expected to improve year over year driven primarily by sustained pricing actions, tariff mitigation,, operational excellence and thoughtful SGA management. Engineered fastening is expected to grow low single to mid single digits organically which is slightly lower than our prior guidance reflecting just 1/4 of contribution from CAM rather than the 2 in our original guidance. Adjusted segment margin is expected to improve year over year primarily due to continuous operating improvement and volume leverage. Turning to other 2026 assumptions, our GAAP earnings guidance, of $4.15 to $5.35 includes pre tax non-GAAP adjustments ranging from $10 million to $65 million. This GAAP guidance. is higher than prior guidance due to an expected $260 million to $280 million gain on the sale of our CAM business which is largely offsetting charges that are primarily related to footprint actions. Our full year interest expense, is now expected to be about $270 million which accounts for 3/4 without CAM and the resulting lower debt profile as well as lower interest in the first quarter. Now for second quarter guidance we anticipate net sales to be around $3.9 billion, down slightly year over year due to the sale of cam, but up by a low single digit percentage on an organic basis. Adjusted earnings per share are expected to be approximately $1.15 to $1.25 in the second quarter. The benefits of pricing tariff mitigation, productivity initiatives are expected to Delivery an approximate 300 basis points year over year improvement on adjusted gross margin, offsetting the continued impact of volume deleverage from the second half of 2025. Additionally, our adjusted EPS for the quarter assumes a planned tax rate of approximately 20%. One additional comment to make on tariffs has to do with 232 tariffs, which were altered by a policy change on April 6. The way 232 tariff policies are applied is complex and broad. Industry headlines are not always good barometers of our profit and loss impact. Although there was much speculation in the market about our outsized exposure to these higher 232 rates. We assess the incremental headwind to be just 15 million on an annualized basis and less than 10 million for 2026, though recall the net of all the 2026 tariff changes inclusive of two hundred and thirty two tariff changes and our updated assumptions for the rest of the year indicate that tariffs are going to provide a tailwind relative to our prior assumptions and will be offset by inflationary impacts caused by the war battery metals and tungsten Turning now to slide 8 let's take a step back and look at our expected implied first half and second half adjusted gross margin performance on a year over year basis. In accordance with our full year and second quarter guidance, we expect meaningful progress for each half of this year. With roughly 150 basis points of implied improvement in the first half and roughly 200 basis points of implied improvement in the second half in the first quarter. We were essentially flat on Agross margin, down 20 basis points year over year due to the timing of the tariff cost realization and volume deleverage offsets we had anticipated and called out in February. As a reminder, we saw peak tariff expense and volume deleverage in the second half of 2025. The impact of both these elements rolls off our balance sheet and into our first half 2026 income statement. We expect tariff mitigation, will make a bigger contribution to margin improvement as the year plays out as we continue to make progress on USMCA compliance, and shifting production for our US Tools business from China to North America. Looking ahead, we remain fully committed to achieving adjusted gross, margins of 35 plus percent, a long standing objective that continues to guide our efforts and priorities. We anticipate reaching this Milestone by the fourth quarter of 2026 and we continue to target 35% to 37% adjusted gross margin by the end of 2028 as we stated on our last earnings call. The other important topic on this slide I want to cover is the debt reduction that resulted from our closing the CAM divestiture, to How Met Aerospace for 1.8 billion. This is not reflected in our first quarter financials because the deal closed on April 6 after the end of the first quarter. However, this has dramatically improved our intra quarter balance sheet and also provides us with a clear opportunity for a more flexible capital allocation approach. Net proceeds from the CAM transaction, were approximately 1.57 billion net of projected taxes and fees. We have used the vast majority of these proceeds to reduce debt. In the second quarter we said we would target 2.5 times net debt to adjusted EBITDA. The closing of CAM and our EBITDA, growth focus will deliver this result. The only reason we aren't there today is due to normal seasonality of operational cash flows, but we are firmly on track to be at or around 2.5 times by year end. Achieving this critical financial milestone provides us with greater capital allocation flexibility. We are now well positioned to respond to market dynamics, invest in growth and enhance shareholder value creation. We remain committed to disciplined capital allocation and accelerating value creation for our shareholders, including funding organic growth, returning excess capital to shareholders efficiently and if and when appropriate, considering bolt on M and A. All the while we strive to maintain an investment grade credit rating. In the near term, we are firmly focused on accelerating organic growth and using excess cash to opportunistically repurchase our shares. The recent authorization from our Board of directors for 500 million in share repurchases provides us with the flexibility to do so. In summary, 2026 is set to be another important year for our company. With a strong foundation set, a sharpened portfolio, disciplined cost and capital allocation, and a relentless focus on our customers, we are well positioned to deliver growth and create long term value for our shareholders. Thank you and I will now turn the call back to Chris. Thank you Pat.
Chris Nelson (President and CEO)
As you heard this morning, our success will be determined by how effectively we execute our strategy which is firmly anchored by our three strategic activating our brands with purpose, driving operational excellence and accelerating innovation. As Pat outlined, we are focused on continuing to proactively manage factors within our control to effectively navigate evolving market conditions. We remain committed to driving towards our near term targets and long term goals. As we look ahead. I am energized by the opportunities that lie before us and am confident in our strategy and the team that is executing it. We are building on our hard earned momentum to serve our end users and we are now positioned to accelerate shareholder value creation. We are now ready for Q and A Michael
Michael Whirly (Vice President of Investor Relations)
Thanks Chris Operator, we can now start the Q and A.
OPERATOR
As a reminder to ask a question, please press star 11 and you will hear an automated message advising you are in the queue. To withdraw from your question, please press star 11. Again we ask that you limit yourself to one question and we will leave the mic open for a follow up question if you have one. You can re enter the queue if you have more than two questions. We will now compile the Q and A roster. Our first question comes from the line of Nigel Ko from Wolff Research. Your line is now open.
Nigel Ko (Analyst)
Thanks. Good morning everyone. Thanks for the morning. I'll try and keep the first one simple. I wonder, can you maybe just unpack for us the improvement in gross margin from first half to second half about four points. I'm guessing there's a bit of CAM benefits. You mentioned tariffs, sorry, USMCA compliance. I think there's some productivity but maybe just help us unpack that four point improvement.
Patrick Hallinan
Yeah, Nigel, great question. It's a long-term focus for us. so we have every intent on hitting it. And the good news when we talk about the third quarter in particular is we could see effectively that gross margin percentage already on our balance sheet. And from here the only things that could really change that is if sales change meaningfully down or there was some very big new spike in inflation. So I mean we can see the 34 and a fraction percentage gross margin for the third quarter already in our balance sheet. And when you think of that stepping up from the first half to the back half, you're talking about really three big factors that go beyond the normal seasonality of outdoor or the CAM issue, that you mentioned because these are really the ones that are going to sustain it and drive it long term, which is, you know, it's about 40% of the delta is net, productivity benefits from our ongoing continuous improvement initiatives. Another roughly similar amount from adjusting our fixed cost structure to the current volume environment that became apparent in the back half of last year after tariff pricing and then the final portion. So about 20% of the Delta is just the ongoing tariff mitigation efforts. So you know, three levers of continuous improvement, adjusting to the current and volume environment and then the ongoing tariff mitigation drives us there and you know, we have every confidence we get there and sustaining it will be continuing to keep our cost structure attuned to the volume environment and dealing with inflation as it plays out the balance of the year on however the war unfolds and however kind of battery metal situation, unfolds.
Chris Nelson (President and CEO)
Okay, thank you very much. And just a quick follow on the tariffs. You made it very clear that the temporary benefit from IEEPA is offset by raw material inflation. But I'm Just wondering if the IPA benefit seems like it could be quite material. So I'm just wondering if it does create some temporary benefits in the P and L during the year that washes out or is it awash in pretty much every quarter. Nigel, this is Chris. I'd say that if you look at the benefit that we see right now, it's we think about it as Pat outlined in the comments, as being a temporary benefit because we do expect the 301s, to be reinstated at similar levels to IEPA and the assumptions that we have in for that intervening period. While all in with all the changes that were mentioned are a net tailwind, they do offset some of the inflation that we're seeing right now, not only in battery metals, but what we're experiencing due to some higher input costs that we'd say are driven by the conflict in the Middle East. So net net there is a bit of a tailwind, but the base assumption is that we are going to see a tariff environment that is roughly equivalent to what we left in IEPA's when the 301s, were put in.
OPERATOR
Our next question comes from the line of Julian Mitchell from Barclays. Your line is now open.
Julian Mitchell (Analyst)
Hi, good morning. Just wanted to home in a little bit more on the tool and outdoor volume environment. You know, the outdoor pickup I suppose is encouraging. Just wondered kind of what you thought underpinned that and how you're expecting the TNO volumes to play out, you know, over the balance of the year given there's some market share efforts, but also maybe a slightly more muted consumer demand backdrop in total.
Chris Nelson (President and CEO)
Yeah, this is Chris. Julian, first of all, good morning, thanks for joining us. And I'll start with Outdoor and say, that I'm very proud of the team and encouraged by the way that they were able to execute in what we would consider to be our preseason timeframe. And the ability to fulfill orders I think positions us to be able to have a nice selling season. It remains yet to be seen which direction that selling season is going to be, but we think we're well positioned to be in a good position for whatever that selling season looks like. So we could experience some upside if we see increased sell through overall in the tools and outdoor environment. What I would say, and I'll say that really we haven't seen any material changes to what we would say underlying demand to look like we did last call we talked about the fact that we expected to see an inflection in Q2 partially due to the previous year comps where as you understand we had disruption in normal promotional volumes and timing. So those coming on this year is going to be a net tailwind as we think about volume relative to last year, as well as the fact that when we talked about what we were going to do to hone some of our promotional strategies in those periods versus what we had in Q4, we expect those tailwinds to be kicking in in the second quarter and we're, we're excited to see that they are on pace for performing as we would have expected them to. But the underlying demand, as we came into the year, we thought about it being relatively flattish and we still see it as being relatively flattish. But we feel good to be positioned from a relative basis year over year to be able to see the growth in quarters two and three that we had outlined as a part of our plan.
Julian Mitchell (Analyst)
That's great, thank you. And then just when we're thinking about price and cost movements, as you said, there's a lot sort of moving around in terms of costs within the year because of tariffs and your own price initiatives. I suppose any more color you could kind of give us on how you're thinking about that price net of cost delta in that gross margin guidance that you laid out on slide 8 as we go through the year. And how's the sort of elasticity on price to volume playing out year to date?
Patrick Hallinan
Yeah, Julian, I would say we haven't really changed our viewpoint materially for the year on price. I mean, as we've said on many calls in the past, you know, we can have deltas of up to 100 basis points or 100 basis points rather in any given quarter on how promo mix dominates or not volume. And that can cause a hundred basis point swing in our reported pricing in a given quarter. But in terms of the price we plan to execute and the adjustments to promotions or select targeted opening price points hasn't changed in any material fashion from the start of the year. And I just would remind you in this environment, most of the price we took, we obviously took last year to dollar for dollar offset estimated tariff costs and then we would reclaim our margin relative to those tariff costs by tariff mitigation. And that is still very much our game plan. So the structure of everything stays the same for this year. As you heard, we have some tariff tailwinds largely from 122s, being lower than IaaS. And then we have some inflation from battery, metals, tungsten and oil derivatives from the war, and those roughly offset in the year. Obviously those things can change on us during this year because there's more trade talks going on this year and there's obviously still to see how the war plays out. And if and as those inflationary factors become more apparent in the back half or the middle of the year, we'll decide what that means for pricing in the latter part of the year or to set up 2027. But right now, if you asked us, our 2026 price plan is consistent with our opening guidance, and everything's playing out in accordance with that. And any inflationary factors from this year that affect the go forward we'll deal with in the back half of the year or the early part of 27.
OPERATOR
Our next question comes from the line of Tim Woese from Baird. Your line is now open.
Tim Woese (Analyst)
Hey, everybody. Good, good morning and thanks for all the details. Maybe just to start out, you know, Chris, you mentioned, I think you guys kind of kind of went through the wall a little bit more with price than some of your competitors. And now some of those competitors seem to be kind of implementing, you know, more price as we're kind of coming through, you know, into 2026. And I'm just kind of curious if you're starting to see any sort of shift on the ground in terms of how that's impacting just kind of your relative POS performance in those various categories.
Chris Nelson (President and CEO)
Yeah. Thanks a lot for the question and thanks for joining us. So as we talked about last call, we were seeing, and we're expecting to see more competitive price movement in Q1, and we did in fact, see that. So I'd say that combined with the actions that we had taken as we did, the view of what we needed to surgically adjust in our promotional and kind of some of our pricing on more of our elastic items, we have seen what I'd say to be, for lack of a better term, more of an even playing field on pricing as the competitive dynamic has played out. In addition to that, as we have adjusted our pricing and promotions coming into the year, as you might imagine, we're tracking it skew by skew to understand the impact and is it in line with what we anticipated and what we modeled out, and to date, it has performed in that manner. So we're encouraged by what we're seeing going into Q2. Now, I will say that the majority of those promotional repositionings do come in in Q2, so we're keeping a close eye on that. And once again, we are going to see more promotional activity versus last year in that area. But right now we are seeing it react as we anticipated, and once again to reiterate what Pat was talking about, that that would be that we were confident in being, you know, along the lines of where our guidance was on price, you know, with the understanding that it could vary a little bit quarter to quarter based upon promotional uptake.
Tim Woese (Analyst)
Okay. Okay, great. No, that's, that's really helpful. And then just, I had a follow up just on Craftsman. I think there's plans to do a bigger relaunch of that product, you know, later this year. I was just kind of curious about the timing and kind of if that could have a more material impact on sales and margins.
Chris Nelson (President and CEO)
Yeah, it's a great question. So the way we have kind of scripted it out has been that obviously going back several years, we started really putting investments and dollars behind the brand health and the go to market and sell through in the DeWalt brand. And we continue to see and are very encouraged by what we're seeing there, particularly in the professional channels, as I think we referenced, we've seen where we saw last quarter high single digit sales in our professional North America construction industrial channel, which is very encouraging. Next from there, what we have, and we highlighted this a little bit in the prepared remarks is, is that we have been working over the past couple of years to also refresh the lineup in the Stanley brand, which we have started by launching our measuring and layout SKUs. And we'll continue to see this year more on the V20 platform coming out in the Stanley brand. So we're in a position, we're encouraged by what we're seeing there as well as the dedicated selling resources we put in place in Europe that we're in a place where we expect to, as scheduled, inflect into growth by midyear. Craftsman is the one that we were spending a lot of time repositioning the cost from a platform perspective. And we've been now launching. We have one of our largest ever NPD launch cycles this year for the Craftsman brand since we've owned it. And we expect by year end to have a lot of that in market and see the benefit by the end of the year going into 2027 as we move into growth on the Craftsman brand. So, yes, I guess I answered more than you asked, but that's how we've been thinking about it for our core brands and that we should see that Craftsman momentum by year end and certainly going into 2027.
OPERATOR
Our next question comes from the line of Sam Reed from Wells Fargo. Your line is now open.
Sam Reed (Analyst)
Thanks so much, guys. Just wanted to maybe drill a little bit deeper on the status of your USMCA tariff initiatives and then also maybe just talk through kind of the status of the China tariff mitigation as well. Thanks, I'll take that one, I guess. So if I think of usmca, we had talked about how we wanted to make sure that we were getting towards or exceeding the industrial averages for what USMCA qualification looked like. As we had talked about at the beginning of this, I guess early last year we were well below average with roughly a third of our products USMCA qualified. We've been making tremendous progress there and are a little bit ahead of pace on those activities and we will certainly expect to be at or exceeding that average in the not too distant future. So we're on pace to a little ahead on the USMCA front. And then just to reiterate, we had stated that we intend to be less than 5% of our sales in the US coming from China sourced product by the end of the year and we are as well on pace for that. And we even with all the changes that we've seen and modifications in tariff policy with IEEPA 122s, etc. We have continued on the same path of the strategy that we initially laid out, which was to first and foremost take care of our customers, making sure that we have availability and and then to make sure that we are able to, through operational moves and leveraging our global footprint, continue to mitigate the costs of those tariffs to ensure that we are driving towards a margin position that allows us to continue to invest in the innovation and brand health that we need to be successful. And we've been. I give great kudos to the team for the way that they have been working tirelessly to ensure that those projects move on pace or ahead of pace that we expected. So we feel good about where we are there. Oh, helpful guys. I'll pass it on.
Chris Nelson (President and CEO)
Our next question comes from the line of Jonathan Matzewski from Jeffries. Your line is now open.
Andreas
Hi, good morning, this is Andreas. I'm on for Jonathan. Thank you so much for taking the question first. You called out stronger outdoor selling ahead of the spring season and higher conversion in the pro channel. Can you expand on what's driving those
Chris Nelson (President and CEO)
trends and the sustainability of outdoor demand from here? Thank you. Well, I think that from an outdoor perspective we have a channel where people are optimistic about seeing good season. Inventories were at a level where people were making sure we're in a position to want to be in a good position to have the proper inventory for when the selling season came and our team was able to produce and execute and fulfill those orders in a timely fashion. We're at the very, very beginning of the key outdoor season, so we'll see how it plays out. But we are in a position to take advantage of any upside that the market may offer. And I think that's the best thing we could hope for at this point. So once again, congratulations to the outdoor team and what they've been able to accomplish. Now, what we've been able to see in the growth in the professional channels both in the US and in rest of world and we referenced, I did earlier, the high single digit growth in the U.S. commercial and industrial channel that's really been driven by a multi year strategy for us to invest in the workflows that we need with the products that we need for those key trades that we're focused on. And we continue to round out that product offering. And I referenced a lot of what we're seeing with the momentum in our perform and protect product line and the DeWalt brand. And then we continue to invest in our go to market and our service and sales force around the world. And I think that the combination of those two things as well as the activity level that we see in the professional channels has bode well for us to be able to continue to grow, we believe above market rates in those professional segments and particularly with the DeWalt brand.
Andreas
Great. I'll pass it on. Thank you.
OPERATOR
Our next question comes from the line of Joe Ritchie from Goldman Sachs. Your line is now open. Hi and good morning. This is Anvi on for Joe. Thanks for taking the question. I wanted to spend one minute on the CAM divestiture recognize there's been some shift in the guide because of the timing on the close. So if I understand it right, it's 15 million as a net impact for the year. Can you help me understand what you said that it would not have a significant impact on Q2. So just any puts and takes around the interest offset as well as the profit for the second quarter and the year? Yep.
Anvi
Yeah. When we gave initial guidance for the year, obviously we had the uncertainty of the specific timing of the CAM transaction. And so we indicated at the start of the year that every quarter that CAM is in our Results it's roughly 110 to 120 million of net sales and roughly 10 to 20 million of pre tax profit. And the year played out very much in line with that. So taking CAM out of the second quarter for virtually all but a day of the second quarter resulted in roughly $110 million net sales reduction and roughly a $15 million pre tax operating profit reduction. But as we indicated in the call, there's a reduction in second quarter interest expense that's roughly equivalent to that. And so those things, the loss of contribution relative to the loss of interest expense roughly offset each other on a pre tax basis. And that leaves the quarter and the year unaffected. Obviously the CAM transaction provides net proceeds of just below 1.6 billion which we use towards debt pay down in the quarter. And so you'll see all else equal our leverage being down by that amount in the second quarter. Also some working capital will come out. CAM was a pretty working capital intensive business, but that was expected in our year end results anyway. And so those are really the big puts and takes. There's kind of no other big big puts and takes on that. And what was uncertain at the beginning of the year is would that happen inside of 26 and when. And obviously we know the answer to that now.
Patrick Hallinan
Got it. That's helpful. And just as a follow on, since you've been talking about the impact from CAM as well as the OPG Gas walk together, if you could provide some color on why this change isn't stated, what it really means, and I know you've quantified it as well, but anything we should keep in mind for the quarter in particular? Yeah, well you're referring to for select gas walk behind product in outdoor we transition to a full manufacturer on our own model to certain products being licensed and that's how we provide those to our channel partners to have a full rounded out product offering that really occurs the back third of this year. So it has very little to do with this spring summer selling season has more to do with kind of the end of that season and how the early parts of 27 play out. And as we recall that that's really a change on the top line of a couple hundred million dollars. That net net is accretive on the bottom line. And that's a project plan that's ongoing and is tracking as we expect at this point. So there's no real big changes to that. And we called out that along with CAM at the beginning of the year just because they were things that we anticipated would really change our reported versus our organic sales in the third and fourth quarter of this year. And that's the only reason we talked about them together is the impact they had on reported versus organic sales the back half of the year.
OPERATOR
Our next question comes from the Line of Brett Lindsey from Mizuho. Your line is now open.
Brett Lindsey (Analyst)
Hey, good morning all. Good morning. My question is just regarding the Pro and the tradesman replacement cycle on battery platforms. I've always thought about that as really a five to six year churn, but curious what you see as the life cycle there and then how are you seeing the next Pro replacement cycle setting up for some of those pandemic units starting to churn and then anything from an innovation standpoint that's maybe activating some of that demand and what the milestones might look like internally there? Yeah, it's a good question. I would say honestly, we think about the replacement cycle as being a little bit more applicable in more of the DIY segment and being that kind of time frame that you're talking about. Because the reality is that the professionals, they have such a high intensity of use and that it's usually accelerated and not as applicable for that timeframe as well as the fact that often they are going to kind of tool up all in for a new job site as they go job site to job site. So what we have seen is that the strength that we see in certain areas in the commercial and industrial world, specifically with data centers, we see great demand there on our battery platforms to support the growth going forward. Now, as it pertains to what we see in the diy, we think that that is kind of behind us from what could have been seen as a pull ahead of volume that needed to shake out over time. I think that's behind us. And what we're seeing from the DIY world is more of an overall effect of the depressed consumer and lower than average kind of project and renovation and repair work going on. As far as what we see for the products that we have been making sure that we drive in order to continue to build out that battery platform, there's really a couple things that we've been doing is one, working with each one of our core battery platforms at the, at the 20 volt XR level, Flexvolt and then launching Power Shift so that we have then three core platforms that we can build around in the professional segment and then making sure that we are really building out all of the tools that each key trade could need and would want to optimize and make them more efficient and safer as a part of their workflow. So we've been making sure that we not only drive and optimize those three core platforms, but then also the tools around them to ensure that we take advantage of what we see as a really Strong installed base for our professional batteries and tools around the globe. Thanks, Chris. Appreciate the insight. I'll leave it at one.
Chris Snyder (Analyst)
From this point forward, we will ask the remaining Q and A participants to please limit themselves to just one question. Our next question comes from the line of Chris Snyder from Morgan Stanley. Your line is now open.
Chris Nelson (President and CEO)
Thank you. I wanted to ask about the competitive environment. It sounds like some of the competitors took price action in Q1, but I guess do you see any changes in the competitive environment as we look into the back half of the year? And the reason I ask is because it seems like while you guys are seeing a tailwind or a tariff offset from the move from EBA to 122, I would imagine a lot of the Asian competitors in the market are seeing even a more significant tariff offset on that rollback. So just wondering, what does that mean to you guys around potential price competition in the back half of the year? Thank you. I think there's a couple things in there. Once again, our calculus and baseline would say that we think that the 301s are going to largely replace IEIPA. So in the back half of the year we're not anticipating there being a significant change in the environment as one. So I think that that would be kind of more of a steady type of environment as a result. So that's kind of anything that would happen in the near term would be temporary in nature. And as we look at the combination of our strategies and how it stacks up versus our competitors and what we have for our global footprint and how we're driving towards really high percentages of USMCA qualified product which have a much lower tariff exposure, we believe that we are at parity to probably mildly advantage as we think about going forward in that environment as well. So what you did reference, which I think is important to note, is we have seen the pricing environment play out more in line with what we thought it would. And we did see Those moves in Q1 in the competitive set. That I think is important as we move into Q2 and the strategies that we said that we're going to be following to make sure that we see the opportunity for us to pivot towards growth in Q2 and Q3.
Rob Werthermer (Analyst)
Our final question comes from the line of Rob Werthermer with Melius Research. Your line is now open.
Chris Nelson (President and CEO)
Thank you. Seems like the overall consumer trend is stability in a world that feels a little bit more unstable. So I wonder if you could comment on trends through April for Europe and the US just to see if that has continued. Thank you.
OPERATOR
Yeah, Rob, obviously we can't start talking about the end of Q2 as we just wrap up Q1. But I would say what we've experienced through the end of the first quarter is consistent with the back half of last year, which as you hint in a really challenging global macro backdrop, I would say the pro and the consumer hanging in better than one might expect. Obviously there's been softness the back half of last year as tariff pricing went into effect and volumes adjusted to that pricing around a one to one elasticity and that continued into the back half or the front half of this year. And our outlook anticipates that while the buyers will continue to be challenged, they kind of hang in there where they've been the last three quarters. And that's what our outlook is based upon. You know, we'll see as the war plays out if that changes, you know, and if it changes, you know, we'll adjust to the upside. Any production that we need to produce. If the consumer heals up a bit and if the consumer ticks down a bit, we'll be mindful of managing our total cost structure while preserving the long term investments. We want to grow the business and pivot towards growth. But I would say your characterization is where our guidance is, which is in a challenging world, kind of buyers being relatively steady where they've been the last three or so quarters. That is all the time that we have for Q and A. We'd like to thank everyone again for their time and participation on today's call. If you have any further questions, please reach out to me directly. Have a good day.
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