Stanley Black & Decker, Inc. (SWK) Earnings Call Transcript & Summary

Hello. Can you hear me? Good afternoon. We're continuing our conference panels with Stanley Black & Decker. I'm Neal Burk. I'm an analyst on the multi-industry team at UBS. We're happy to host Pat Hallinan, Chief Financial Officer of Stanley Black & Decker. He's going to have some opening remarks and slides, and then we'll go into the discussion. Thank you, Pat.

Thank you. Thank you, and good afternoon to those here today in Florida. I was just going to cover 3 slides really for those of you who didn't get a chance to either attend in person or online our Investor Day. We had Investor Day right before Thanksgiving. And a big part of Investor Day was to kind of talk about where we are in our journey. For those of you who might not be very familiar with us, obviously, we had some challenges coming out of COVID. And Don Allan, our CEO, put us on a transformation journey starting late '22, and we're trying to wrap substantively all of that up in '25 and then pivot towards growth. And that's a lot of what our Investor Day was all about was kind of wrapping up the transformation, where do we go from here. So a few slides. You're not too much in the way, Neal. I think we can get through this pretty quickly. But some of the key messages coming out of our Investor Day, one is we definitely refocused the portfolio. We sold off Security business, the Oil & Gas business, the Doors business, a number of businesses. And our portfolio today is about $15.25 billion of revenue. About $13 billion-and-a-fraction, that is a global Tools & Outdoor business with our biggest brand being DEWALT. Other big brands being STANLEY and CRAFTSMAN, all of those well beyond $1 billion; and in the case of DEWALT, almost about $7 billion. And then we have an Industrials business, which is mostly a fasteners business, a fasteners business that services auto, aero and general industrial, both with the fasteners themselves, but often, the tools or robots or welding equipment that go along with those fasteners. And that business is about a $2-and-a-fraction billion. And the portfolio is very focused. We believe we have both of the businesses on a strong improvement path, which put them on a solid foundation for growth. We've delivered on the promises, all the major promises we've made in terms of margin expansion, cash generation, inventory reduction and debt pay down that we put forth as part of the transformation. We expect to finish this year at about 30% gross margin, which is what we expected at the start of this year. We expect to have inventory reduced about $2.2 billion, debt reduced about $2 billion and have the brands an investment path where they could return to growth. We definitely want to get back to growth. That's our full intent and we are 1.5 years into investing for growth. And Chris Nelson, the gentleman who runs our Tools & Outdoor business, spent a lot of time at the Investor Day talking about the investments we're making in our 3 biggest brands, DEWALT, STANLEY and CRAFTSMAN, around speeding product innovation, investing in brand building and investing in the field support of those to pivot towards growth. And we really believe our company provides a great strong opportunity for economic value creation and certainly, for investor value creation, especially since, unfortunately, a little of the tumult of the current macro economy and geopolitical environment, we think, still leaves a lot of upside in front of us. At the Investor Day, we talked about the long-term financial outlook. When Don put the company on a transformation path at the start of '23, really the latter innings of '22, he outlined some financials through '25. We felt we needed to start talking about where do we expect to go long term. This is kind of beyond '27. We fully expect the portfolio, more often than not, to be growing mid-single digits in a low single-digit growth market, so about anywhere from 100 to 250 basis points of market-leading growth, get -- we will relatively soon get the margins to 35%. And beyond that, we think we have the opportunity with product platforming to get them beyond 35% to 37% once we get the business model into a more steady state. Right now, where our operating leverage is beyond 20% to 25%, obviously, as we're on a big margin improvement journey, but even once we're in a steadier state operating model, having annual operating leverage, so pretax operating income as a percentage of net sales growth in the 20% to 25% range. EBITDA margins, adjusted EBITDA margins in the high teens; getting CFROI to the mid-teens or above; cash conversion around 100%, plus or minus 10 basis points; and having our leverage back into the 2.0 to 2.5x net debt to EBITDA. And we think by '27, we're going to be close to many of these. Maybe given the level of revenue growth, maybe not the EBITDA, CFROI margins quite yet. But certainly, in terms of growth rate and gross margin and leverage on the balance sheet, we think we're kind of at or better than these levels. And the underlying dynamics that we expect to be party to this is low single-digit real GDP growth, which is our kind of main growth, underlying growth metric and relatively benign inflation and deflation; and the extent to which we have to deal with things like tariffs or other geopolitical dynamics, that we can kind of work through those in 24 months or less, which we talked about both at the Investor Day and before the Investor Day, some of our tariff preparedness. And so when we look to '25 and beyond, we really see wrapping up the transformation substantively by the end of '25. Maybe some of it trickles into the earliest days of '26, not far beyond, really pivoting towards growth and getting back to that mid-single digits growth and then really deploying capital with discipline. We have a really strong dividend. We expect to have the balance sheet resolidified by early '26 or sooner, maintaining that dividend and actively deploying capital, probably beyond things like investing in the organic turnaround and growth and maintaining a strong dividend, probably more likely than not, share buybacks in the near term. So with that, turn it over to Q&A.

Thank you. So Pat, gross margins are a focus for the company. You've already demonstrated an ability to expand gross margins quite a lot, up 400 basis points from 2023 despite a weak demand environment. What are the kind of building blocks to go from here in the low 30s where we are currently to 35%?

Yes. So for those not close to our story, really, they troughed out around 20%. And as you mentioned, we'll finish this year at 30%. We'll probably have the fourth quarter at 31% and a fraction and carry that into the front part of next year. We're still trying to work towards 35% by the fourth quarter of next year. I mean, might slip into some part of '26 depending on headwinds and tariffs. But that's still our focus. And the 3 big levers that get us to 35% are additional waves of strategic sourcing, some further footprint rationalization. We probably are working out 2 to 3 facilities each of the next 2 years, creating some centers of excellence in the process of doing that in addition, I'll call it, some kind of maybe long-term integration opportunity that we're just realizing now. And then finally, some in-plant operational efficiency, mostly through Lean. Those are the 3 big building blocks. I'd say that the road to 35% really is not about some new pricing dynamic and it's really not about volume leverage. I mean, obviously, we need the volume to stop declining but we don't need volume leverage. The route to 35% is very, very heavily cost structure-focused.

Right. And do you see the next 400 basis points, call it, from the low 30s to 35%, understand going out longer term, you have up to 37%, but I mean, do you see that the next 400 basis points are somehow more challenging than the last?

No in terms of degree of difficulty or the types of levers we're pulling. I would say what's been the pacing of it, and this has been as true in fiscal '24 as it will be in fiscal '25, is you're working on projects, and we laid a lot of this road map out more than a year ago. And as volumes have been softer, you end up with -- your net result isn't quite at the pace you wanted your net result, and it's forced us to roll in more projects sooner. So I would say the challenge of it has been the challenge of moving things in more quickly to offset the soft macro volume environment that we've lived through for the last 2, 2.5 years. But the actual what we're trying to get done isn't, in and of itself, in isolation, more difficult. And I'd say all that you've seen because if you've followed us by quarter, it hasn't been a perfect linear line; it's kind of been more half year increments. And that's more it takes about 6 months for stuff to come off our balance sheet. So anything we're doing in the back half of this year is affecting the front half of next year and vice versa. And you're just kind of moving things into these waves of half years.

And just one more question on gross margin for now. Are you -- sorry, we can move on from that for -- no, the weak demand environment, I apologize. That's been stated a couple of times now. What are the biggest variables that you see that could maybe speed up or slow down the time line or maybe lead to upside or downside versus [indiscernible]?

Yes, I'd say -- like I said, we're still, as a team, trying to race as many initiatives forward to deliver on that fourth quarter '25. And we'll see as we get to early part of next year and we'll give guidance what our read is on that. I'd say the things that would accelerate it would be, does the macro accelerate? We're mostly tied to construction so that's pretty interest rate sensitive. I'd say having the 10-year get below 4% would be probably a pretty good help to that. Or do you end up with meaningful deflation? Which in our world, materials have been slightly deflated. It's really been freight that's been inflated, and so if that freight dynamic could die off. I think those things would accelerate the dynamic.

In terms of operating profit, you have a pretty significant ramp through 2027, about $900 million, if I remember correctly, in EBITDA.

That's correct. Yes.

What are the drivers of that? I imagine gross margin is a big contributor to that, but also are cost-outs on the OpEx line also contributing to that EBITDA ramp?

I mean, we're going to be doing what any mature and appropriately disciplined company will be doing inside of our SG&A of how do we make the back office more efficient to invest for growth? And are we getting the right level and pace of returns for any type of growth-based SG&A investment? But the pure EBITDA expansion that you talked to, about $900 million to $1 billion, which is correct, over that 3-year horizon, I'd say it's like 3/5 are going to be margin expansion and 2/5 volume growth over that time horizon, at about a 3% volume CAGR over that time horizon. And then you do have SG&A probably growing $300 million to $400 million, consuming some of that. But I'd say as a percentage of sales, not deviating materially from where we are now.

Right. And in terms of investments in products, I know that's a big driver of organic growth over time. What level of investment should we expect over the next couple of years? What areas are you investing in?

Yes, yes. Our investment focus has been threefold: enhancing and speeding product innovation; brand building, so activating the brands much more actively; and then supporting them in the field, both field sales and field product support. Those have been disproportionately what we're investing in and disproportionately in our 3 biggest brands, DEWALT, STANLEY and CRAFTSMAN. The mix in the recipe has been a little bit different in each. You have DEWALT, which is heavily a pro-centric brand, a truly global brand. And therefore, there's a lot of investment we're making in specific trade categories, whether it's concrete, electrical, plumbing. You have another brand, CRAFTSMAN, which is a heavy DIY retail-centric brand. So I'd say tightening up the breadth of that product line and going a bit deeper on the direct-to-consumer marketing. And STANLEY is a brand that straddles both of those spaces and has a little different footprint outside -- I'd say it's a bit more of a pro brand and a power tool brand outside the U.S. than in the U.S. It's a pro brand but a hand tool brand, right? And so the recipe is a little bit distinct for each, but all of them have elements of speeding product innovation, enhancing marketing, both direct-to-buyer marketing but also the support with the channel and then, in the case of pro-centric, field support of the brand.

And in terms of the recipe being a little bit different for the brands, DEWALT's strength has clearly been outgrowing the market over the last decade, but maybe DIY brands are struggling a bit more the last 2 or 3 years. Are there differences in terms of the core product lines in terms of what you're maximizing, whether it's organic growth or operating margin? Or would you say that organic growth is overall the priority across the brands?

Yes. I mean, slight differences, but I wouldn't say in the pure algorithm of, there's not one that's a growth vehicle and one that's a margin vehicle and they're kind of going down very different paths. I think obviously, when you start looking at pro-centric tool brands, they're going to be above our fleet average margin. But they also probably have as much or more growth potential just because when you're bringing productivity, safety, quality enhancements to pros, they're willing to pay a premium and they're willing to switch faster than their existing tool expires. But we would expect them all to be within a relatively tight envelope of our portfolio averages.

Right. Moving to organic growth. You have a low single-digit organic growth outlook, I believe, through 2027. Longer term mid-single digit, but that's outgrowing a low single-digit market. What drives that outperformance for Stanley Black & Decker?

Yes, I think it's going to be the effectiveness and pace of innovation and the level of which we're supporting things in the field and a disproportionate focus on the pro. I think those will all be the things. I would tell you, COVID, the back half of COVID aside, and even if you take off the front half of COVID, you're probably looking at DEWALT was a brand that, for the decade, that preceded COVID growing at an 8% CAGR. Obviously, different market share dynamics at that time, but we think very much within that brand to be growing mid-single digits or above for sure.

Right. And is price -- is there sort of a long-term strategy of price? Prices held in, I think, pretty well considering the destock and the weak demand environment, at least on DIY. Is there kind of a longer-term growth algorithm that you think about when you think about mid-single-digit growth?

Yes. It's not really in the numbers we've shared today or the Investor Day, which are obviously the same is that's kind of an assumption that competitive dynamics and brand health kind of represent the current frontier, which is really pricing in the current state is kind of preserving percent margin type pricing and price/cost neutral on a percentage base. I do think an appropriate challenge for our commercial teams is once we have the brand health back to where we'd like it, especially in brands other than DEWALT, is can price be a more continual lever of revenue growth and margin expansion? But I think that's probably something that's more than 5 years down the road. I think we need to return the pace of our innovation and get our brand health up a bit before we start leaning into price at that level.

Right. When I think about the -- and STANLEY's company growth historically included in this or just the U.S. tools market overall for the last, call it, decade, is a market that's grown about 6% to 7% annually. So a bit above your mid-single-digit long-term target. Is there some conservatism in that mid-single-digit target, given the challenges the last 2 or 3 years? Do you think that there's maybe some upside there, given this is a $100 billion market?

I think there's upside. I think it's not so much intentional conservatism or there's some hidden dynamic in there. It's more predicated on the -- it would seem to us, while we feel like we are exposed to a lot of very attractive growth opportunities, in that there's a lot of pent-up demand for construction everywhere in the world, not just in the U.S. You are though starting to run into interest rate dynamics that are not -- are likely to be not as favorable as near 0 interest rate dynamics, which affected a pretty good chunk of the time horizon you were going up against. And so all we're saying is we think construction markets will grow at or above GDP but probably be at a level that's distinct from when interest rates were near 0. That's really the basis of it so much than some intentional conservatism or other dynamics.

And at the Investor Day, you talked about some new geographies that you're expanding into, expanding the presence. Can you talk about that? Where are you seeing the biggest growth outside of the United States or biggest market currently? And what type of investments will you need to make to grow that?

Yes, yes. We have a presence in Europe which is going deeper, it's been in Eastern Europe, probably deeper in Eastern Europe and in Latin America. Both areas have been providing very consistent and very strong growth on the backs of DEWALT and STANLEY predominantly. And we would expect those to continue. And then we've made some meaningful investments in the Middle East, Saudi and beyond around serving infrastructure build-out. And we would expect those to be disproportionate growers going forward.

Understood. And one more question on growth within the brands. Like I think the case for the pro, higher productivity, safety, clearly, that's worked for DEWALT. Is that something that you think applies equally to the sort of DIY brands? Is that equal focus of investment in R&D?

I think it applies heavily to things like STANLEY and some of our other specialty brands like LENOX with cutting tools that are -- would be deemed to be always kind of pro grade and premium price. I think in the case of CRAFTSMAN, it's really about the garage/outdoor space and people wanting high performance at an attainable price and ease of use. And so I think it's the stuff that proves itself and the pro gets to scale, gets up the cost curve then gets deployed in places like CRAFTSMAN.

Talking about DIY coming back. DIY, I believe volumes are below 2019 levels at this point, I believe.

Certainly in outdoor categories.

Certainly in outdoor categories. You mentioned interest rates a couple of times. Are there any other kind of macro indicators that you're looking at to see a recovery in DIY?

Well, I mean, I think there is a little bit of tool life dynamic. And while we haven't yet -- and we talked about this on both of the last 2 quarterly calls, while we haven't seen POS in developed world retail, especially kind of U.S. and parts of Europe, kind of sustain 4- to kind of 13-week positive growth cycles, we have seen positive weeks, right? And so I think it tells us, independent of interest rates, that we're starting to kind of get to the bottom of the reset. And tool life must be expiring because we are seeing kind of the rate of decline has slowed. It might not be completely done but if it's not completely done, it seems very close.

Right. Moving to balance sheet. Inventory reduction is a priority in terms of balance sheet.

Yes.

Can you talk about that, how you're driving down inventory levels despite the low volume?

Yes, yes. For those of us -- those of you who have been maybe close to us, for a lot of '23, it was really about idling capacity, whether temporarily or more permanently than that to get inventory out of the system relative to the demand at the time. And that was one of the reasons that affected the cost journey, right? Because for a while, any plant that wasn't being closed, that absorption was just going on to the balance sheet that's kind of expensive inventory. We're kind of through that cycle. We probably finished this year in the 150 days of sales range, mid-150s. And we ultimately want to get to about 120, 130, so think of it as 125. So if we still have 25, 30 days to get out of the system. We're probably 2 to 3 years away from that. And the reason we're not racing towards it is a little bit less of an unwillingness to idle. It's more of the footprint changes we're also making. So as we close some plants and we create centers of excellence and consolidated footprints and we're doing similar things with our distribution network, we need some inventory buffer as we work through that. And so the pace of inventory reduction is kind of a combination of the pace of footprint change and the type of footprint change that's going on relative to the demand cycle. But I would say we're probably taking $300 million to $500 million of inventory out each of the next 2 to 3 years until we're at that kind of 125 plus or minus 5 days.

At the Capital Markets Day, you talked about divesting over $500 million -- or proceeds of over $500 million. What types of businesses are those? What are the criteria for divestment?

Yes. I'd say so we really want to get our balance sheet back down to and below 2.5x net debt to EBITDA. We'd like that to be the case. I mean, our challenge to ourselves and where we've been working with the rating agencies is to do that or have an agreement to do that by the end of '25. And we still feel like we're tracking to that. We've been meeting all of our balance sheet commitments. Just by the nature of a low volume growth environment, that's what requires the inorganic proceeds to do it. So we'll probably need to divest 1 or a couple of assets that can generate that type of net proceed. I think first, it starts with a strategic review, like what is core to your long-term growth and margin mission? And there's a few businesses that we love but they're probably not the closest thing to our long-term mission. And you're right, we talked about some subsets of each of our businesses in the past on this dynamic. I'd also say then you get to the practical realities of where's there an M&A market in '25, '26? Is the business ready to be sold? What's the challenge of extracting it when you got all this other stuff going on? And is the industry in a stable or upswing environment versus it's an industry in a down environment? So we have our eye on a handful of assets that probably fit that category. And we'll see what the new administration kind of puts forth in its first half of the year and then we'll kind of make a decision from there of what that asset is and probably go into a process at that point.

Moving from divestitures to acquisitions. Are there any -- once the balance sheet is in order, are there any areas that you would look to expand the balance sheet through M&A?

Yes. I would say we certainly, at some point in the future, would expect to reengage in M&A. It's not our most pressing matter. We want to get our balance sheet in order. But I'd say just as important of getting our balance sheet order is Chris Nelson, President of our Tools & Outdoor business and the COO of the whole business, we need to get his team back to consistently having market-leading growth. We need to get them operating with consistent margin performance and margin expansion and get the pace of innovation and the platforming engine going before we slap another big asset on it. So in other words, get our organic capabilities up before. So it's more than just a balance sheet dynamic. It's a balance sheet plus capability dynamic. I'd say it could be as soon as '26 that we have capital allocation and flexibility beyond the transformation, organic growth in the dividend. That's probably more likely to go to share buybacks at that point in time. And once we feel like we have a really strong organic performance engine and a clean balance sheet, we're probably inclined to do acquisitions in the tool space is probably where that would be.

Aside from the cost restructuring, the business has gone through a big transformation the last few years due to the divestiture of Oil & Gas, Infrastructure, Security. What has that meant for the company being more tools focused in terms of capital allocation?

Well, I mean, I think it's meant that, especially in this period where we're coming out of leverage, that we're protecting investments in organic growth, right? And that -- the company was such a strong acquirer for so long. That was among the highest calling of capital. And it's really, I'd say, retraining the enterprise because the company was built by a handful of really big brands and brands were the primary consumer of capital. And I think it's kind of getting back to the roots of that, of having really strong organic growth agendas and feeding those appropriately but also getting in place the mechanisms. Chris's team, this year is the second year where they're deploying the bulk of our $100 million of SG&A investment. And they have 5 metrics they're looking at in terms of brand -- a few of them are brand-oriented, a few of them are product-oriented and a few of them are geography-oriented around making sure when they deploy these investments, that they are starting to return on the time line we expect.

Right. You're relatively new to the company, April 2023. There's a lot of management changes. In your time at Stanley so far, do you notice the change from what your perception of the company before you joined and any culture, the way it operated?

Yes. I came from another durables player, not terribly dissimilar in terms of a company built by a mix of acquisition and divestiture over 100 years. What I've noticed is a company with a lot of pride in its brands. Our biggest brands, STANLEY's almost 200 years old; DEWALT just celebrated 100 years. And what I would tell you was true when I arrived, and it's still true today, is the passion for seeing the brands succeed and the passion for the end user and innovating for the end user. And I'd say that's the core of the DNA and that's what underpins the strength of the business, and we're trying to work actively to preserve. And then what this current leadership team has done has kind of pivoted the culture away from kind of a strategy heavy on acquisition and a heavy sales focus and pivot it more towards a brand and product focus. And that's really kind of getting probably back to the historic DNAs of the business. And so that's where we've been investing our time, in both cultural change and business and economic change.

Right. Moving to tariffs, which have been a big topic of discussion. You talked about the framework going from the current tariff levels, China tariffs to 60% would add an incremental about $200 million on the current $100 million. So that's the way we should sort of think about it because there's a lot of volatility in the potential tariffs that could be imposed for China? Is it sort of like 1:1 in terms of the tariff rate and the impact on the company, given that framework or [ something different ]?

Yes, we did, and I encourage if you're interested in this dynamic, we did at the -- both the Investor Day and before, we kind of disclosed our U.S. COGS are roughly 1/2 our global COGS, and then we had a pie chart of our U.S. COGS, which were 20%, 25% China; 25% to 30% neither China nor U.S.; and then the balance 45%, 50% U.S. And you kind of take those COGS and those COGS dollars and kind of run whatever scenario you think might happen. Obviously, even since the Investor Day, there's probably been at least 2 tweets that have kind of changed that. And I'm sure there'll be a number more between now and February. I would say what we are anticipating and were anticipating even before the results of the election were known, is over time, it seems to us as a company that we need to make our U.S. business less reliant on China, almost irrespective of whether that's a Republican or Democratic regime, both for geopolitical tension reasons and kind of understandable interest in protecting the American workforce reasons. So I'd say that means while we've taken -- the U.S. market was probably getting 40% to 45% of its products from China, now 20% to 25% of its COGS from China, we need to keep on that path. And all the tariff dynamic does is reorder the pace of that path, right? It's the faster the government forces it, then the faster -- it's not just our company forcing ourselves to move, we've got to move suppliers with us, we've got to reorient where our engineers are based. And those are -- those tend to be harder than us choosing where to have a new rooftop. It's how do you get your suppliers and your engineers to move that quickly. So I think that is going to happen kind of irrespective of tariffs, and that's why we pointed towards the China dynamic. I think as you've seen in the intervening weeks, it's going to be a fluid environment, and we're probably going to have to deal with more than just China. But our expectation is most of those things will be temporary. And irrespective of what comes at us, we are going to use a combination of price, supply chain moving and government relations to deal with it. And we'll work really hard on the price front to preserve our margins as we go through the early innings of it.

And that $200 million of incremental cost from China going from 25% to 60%, is that assuming you don't raise price? You don't [indiscernible]?

Yes, that was just kind of the COGS, right? That's kind of the, if you take this pool of -- and we were being specific of Lists 1, 2, 3 and 4A, which are the 4 things that are currently tariffed, that's just the pure cost. We wouldn't expect to just accept a $200 million hole in our P&L. We would start by pricing and then we would be changing the supply chain, and then those 2 things would get kind of rebalanced over time.

Right. And thinking about the tariff escalation in 2017, Stanley has materially brought lower its China COGS exposure. Now 20%, 25%, you mentioned. Is there anything else? I mean, I understand that precedes your time with the company. But is there any other changes that the company has made to kind of set up the next round of avoidance and tariff escalation?

No, I'd say -- I mean, again, as we went down a cost transformation journey the last 3 years, we also had, as part of that, a longer-term supply chain resiliency strategy, which is over time, how do you get more NAFTA for NAFTA, more Asia for Asia? And how does that Asia for Asia become less China-centric? And I'd say those were always elements. So as the kind of the '22 through '25 cost journey was playing out, you are trying to, as you rationalize your footprint, go to what you expect your end state to be and we're still doing that, putting, first, cost and then geopolitical diversification second. I think all tariffs does is kind of co-mingle those or reorder them a little bit on the margin.

And one more question on tariffs. Are there any aspects of -- a lot of moving pieces in the transformation with the balance sheet, inventory reduction, gross margin. Are there any pieces of that, that you think are most at risk? Or do you think it's all manageable based on offsets?

I think tariffs really affects the pace of margin going up but not in some way that's -- like we're talking about multiple year shifts, right? Does it put you 6 to 15 months behind a time line you'd like to otherwise have, just because there are finite hours in the day and people even, we are willing to invest in more people, that could shift that, but I don't think it's more than that.

Right. And that brings to mind the question I wanted to ask on gross margin earlier. It's assuming no real change in demand, which remains weak. And so would you anticipate the gross margin ramp to be helped materially by...

Yes, definitely. It would definitely be. We would really welcome a volume tailwind but we're committed to getting the 35-plus percent margins, absent that, for sure.

Right, right. And oh, question?

Just a follow up on that tariff thing. To get more capacity in the U.S., you can't flip the switch. How long would it take for you to get the 25% from China down to something less than 10%? Is there unused capacity in the United States that you could reach out to your suppliers? Or is this something that's going to take a workforce training and factories be built and would take a couple of years?

Yes. And again, I sometimes hesitate to be the mouthpiece of U.S. industrial policy. I think in the U.S. specifically, first, I'd remind that we do have 40%, 45% of our capacity already here, which is mostly hand tools and outdoor power equipment. Power tools are mostly outside the U.S., not exclusively but mostly outside the U.S. It's less about rooftops and it's more about labor, right? We're starting with a 4%-ish unemployment rate. I don't want to trivialize the rooftops. When you think of -- you could probably solve the rooftop equation. If equipment it takes -- for equipment that runs plants, they tend to be 9 to 18 months, sometimes longer than 18-month equipment lead times if you're not just moving the equipment, if you have to actually buy it new and then there's labor. And so I think to the extent some or all of the tariff push actually becomes about where plants are located, it's not likely to all be coming back to the U.S. Could there be small subsets of it? Yes, probably more likely than not governed by labor and equipment lead times than by real estate.

I think the time is up so thank you very much.

Thank you.

Thank you.

Thank you for the interest. Have a good afternoon.