Stanley Black & Decker, Inc.
Q4 2020 Earnings Call Transcript

Published: 28 Jan 2021

[Operator:]

Welcome to the Fourth Quarter and Full-Year 2020 Stanley Black & Decker Earnings Conference Call. My name is Shannon and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to the Vice President of Investor Relations, Dennis Lange. Mr. Lange, you may begin.

[Dennis Lange:]

Thank you, Shannon. Good morning, everyone, and thanks for joining us for Stanley Black & Decker's 2020 fourth quarter and full-year earnings conference call. On the call in addition to myself is Jim Loree, President and CEO; Don Allan, Executive Vice President and CFO.

[Jim Loree:]

Thanks, Dennis and good morning. Today we issued record fourth quarter results marking an outstanding close to a very dynamic and successful year. As I mentioned in our 2020 shareholder letter, we expected the operating environment of the 2020s to be one of volatility, uncertainty, complexity and ambiguity or VUCA for short. Lest we had any thought of easing into that construct over time. Like others we were thrust into action as the pandemic roared onto the scene in March and April. And as for many companies, the early days of the pandemic brought into focus the first rung of Maslow's hierarchy of needs. We quickly established pandemic era tactical priorities. First, protect the health and safety of our employees and supply chain partners. Secondly, ensure the continuity of our operations and financial stability. And third, do what we can, or could to mitigate the impact of the virus in our communities. We undertook a myriad of actions consistent with those priorities, including the implementation of intensive companywide safety protocols, including mandatory masks from day one, significant liquidity enhancements, cost reductions, some temporary, some permanent as well as a substantial increase in our philanthropy, both in dollar terms and in-kind. We asked our people to be guided by our purpose. For those who make the world, we emphasized our three simple leadership principles which include creating clarity, inspiring engagement, and growing and delivering. Our people, while dealing with a personal hardships and challenges characteristic of this era, responded beautifully to our lead. Amidst four weeks of collapsing sell-out revenue in April, we were hunkered down, ready to ride out the storm. And then suddenly in the last week of April, and on into the summer months, an abrupt and very positive phenomenon emerged in the tools business. Our end users, many of them homebound, with time on their hands, discovered and/or rediscovered DIY projects, both indoors and outdoors. We enjoyed a surge in North American retail of a magnitude never before experienced. By June, POS was running 30% to 40% greater than the prior-year.

[Don Allan:]

Thank you, Jim and good morning everyone. We're incredibly pleased with our fourth quarter financial performance which closed out an amazing back half to 2020. So now, I'd like to review our business segment results for the fourth quarter. Tools & Storage delivered an exceptional 25% total and organic revenue growth with volume up 23% and price contributing an additional two points. All regions continued to benefit from exceptionally strong revenue trends related to the consumers' reconnection with home and garden. E-commerce continued to be very strong. We had a strong holiday season, and a robust lineup of new products and innovation. The operating margin rate for this segment was another outstanding result at 20.7%, up 420 basis points versus the prior-year as volume, productivity; cost control and price were modestly offset by new growth investments. As the revenue outlook improved during 2020, we released incremental SG&A investments to further the development of our brands via digital marketing, increased distribution capacity, and added commercial resources to support our business model in brick-and-mortar and e-commerce. We believe much of these investments will drive further organic growth in share gains in 2021 and 2022. Now let's look at some of the geographies within Tools & Storage. North America was up a robust 27% organically. Retail continued to see exceptionally strong POS, delivering 36% organic growth through a very strong holiday season along with continued momentum in e-commerce. POS growth for the quarter approximated 30% and retailer inventories ended the year slightly below Q3 levels and well below prior-year, an amazing Q4 performance for the Tools & Storage team. And what's incredibly amazing is we still have a channel refill opportunity of four weeks in front of us that will likely materialize in the front part of 2021. The North American commercial and industrial channels continue to experience positive sequential trends, with both posting low single-digit growth this quarter versus declines in Q3. Pure play construction customers within these channels were up mid-teens in Q4 significantly improved from the low single-digit growth last quarter. This trend is clearly another strong signal that professional demand is back and accelerating. The Tools & Storage European business also had an outstanding fourth quarter as all regions grew, which resulted in 18% organic growth. This performance was led by the UK, Central Europe, Nordics, Benelux and Iberia all up double-digits with France and Italy up mid-single-digits. The team experienced strong revenue growth in both retail brick-and-mortar and e-commerce. Finally, emerging markets delivered an exceptional quarter of organic growth as well up 22% with all regions posting positive revenue trends. We experienced strong construction demand in these markets, and when combined with positive pricing momentum, it supported this robust performance. Latin America was the strongest performer delivering 36% organic growth with all countries up double-digits, while Russia and Turkey had another very strong quarter, also resulting in double-digit growth in these markets. Finally, Asia delivered low single-digit growth led by South Korea and India each up double-digits, which was partially offset by modest declines in China and Southeast Asia. Now let's pivot and look at the Tools & Storage SPUs. Power Tools delivered 32% organic growth, benefiting from the home and construction trends mentioned previously, as well as strong commercial execution for the holiday season, and new product introductions. We continue to see strong share gains from our new innovations in Flexvolt, Atomic and Xtreme which now represent over $600 million of annual revenue on a combined basis. Now to our product tools business delivered 29% organic growth as these categories continue to benefit from the consumer reconnection with the home as well, as new DeWalt and Craftsman cordless products were launched in 2020. The Hand Tools and accessory and storage business delivered an impressive 15% organic growth this quarter. This was supported by new product launches, the strong performance in emerging markets, and Mac tools combined with the rebound in professional construction demand I just previously mentioned. In summary, an amazing quarter and an incredibly successful year for Tools & Storage. The team remained focused and responded with agility to the pandemic, and quickly pivoted to fulfill the surging demand that emerged in the second half of the year. This effort was remarkable and helped them deliver record levels of growth and margin expansion during one of the most challenging operating environments in our lifetimes. Great job by the entire team, we thank them for their intense and focused efforts. I'm really excited to see the encore performance in 2021. Turning to Industrial, total growth was 10%, which included an 11 point contribution from the CAM acquisition and two points from currency. This was partially offset by a 2% volume driven organic decline and a negative 1% impact from the divestiture of a non-core product line in oil and gas. It was great to see continued improving trend sequentially as the organic decline in Q3 of 18% improved to negative 2% in the fourth quarter, a trend which is positioning the segment for organic growth in 2021. The operating margin rate increased 110 basis points year-over-year to 14.7% as the benefits from productivity and restructuring cost actions more than offset the impact of the lower volume. Diving a bit deeper into this segment, engineered fastening revenues were down 2% organically, as growth in automotive was offset by an improved but still declining general industrial end market. Automotive was up mid-single-digits behind high teens growth in automotive fasteners, which was partially offset by continued declines in systems as most new capital investment decisions related to new car models continue to be on hold. However, Global Light vehicle production continues to improve and we remain well-positioned to outpace the underlying market with content gains in the fastener portion of this business. Industrial fasteners declined high-single-digits in the fourth quarter, the recovery in the Industrial markets continues to progress and we once again saw sequential improvement. Our infrastructure businesses declined 5% organically as positive attachment tools growth was more than offset by reduced pipeline construction in oil and gas. And finally turning to Security. Total revenue was down 3% with a 3% positive impact from currency, while price and acquisitions each contributed 1%. This was offset by a five point decline in volume and a negative 3% due to the divestitures announced last quarter. North America declined 5% as growth in healthcare was offset by lower installations in automatic doors and commercial electronic security. These businesses are serving markets that are still slowly improving from the pandemic impact and it also faced a difficult 7% growth comparable in 2019. European Security organic growth was relatively flat as they experienced solid growth in France from the new growth initiatives which began to take root. This performance was offset by lower volume in the UK related to the various intense lockdowns from the pandemic. Our focus on health and safety initiatives such as touchless doors, contact tracing and healthcare solutions are building momentum and generated about 150 basis points of growth in Q4. With a healthy backlog, a continued recovering market, and the addition of these new solutions, we're optimistic that Security can return to growth in the front half and for the full-year of 2021. In terms of profitability, the segment operating margin rate was 11.2% flat versus the prior-year as price and cost control were offset by the impact from lower volume and growth investments. Now let's take a look at our very strong free cash flow performance on the next page. As you can see, we were able to leverage our strong operational performance in the back half to generate a record full-year free cash flow of approximately $1.7 billion in 2020. This represents an increase of $593 million versus the prior-year and a free cash flow conversion of 136% of net income. This result was driven by the strong growth in Tools & Storage, our companywide cost actions, and lower capital spending delivering significant improvement in cash earnings. Now as it relates to working capital, we delivered 10.4 working capital turns, up 0.6 turns year-over-year reflecting the strong revenue performance and leveraging the SBD operating model to drive working capital efficiency across the company. With the strong cash generation and inclusion of the excess cash on the balance sheet, which amounted to $1.4 billion at year-end, we believe we-re well-positioned from a leverage perspective heading into 2021, a fantastic outcome. Now we'd like to discuss our views on 2021, as improving channel and markets visibility has enabled us to reinstate guidance. Beginning with Slide 10, I'd like to dive deeper into several of our 2021 organic growth assumptions. We're experiencing a fast start to the first quarter as strong market trends in Tools & Storage continue combined with improving Industrial and Security markets. Therefore, we expect organic revenue growth to approximate 21% to 26% for the company in the first quarter of 2021. Tools & Storage is the largest contributor of this strong performance and our plans assume a 1Q organic growth range of 30% to 40%. Underpinning this assumption is the continuation of the strong demand trends, the potential for customer inventories to start to move back to historical levels, and finally, we have an easier comp since Q1 2019 had the beginning -- Q1 2020 had the beginning impacts from the pandemic. Growth continues to be broad-based with all regions contributing to very strong outlook. POS in U.S. retail through the first three weeks of January has remained in a similar band that we experienced during this December and we're assuming this trend will continue through the remainder of the quarter. We're also seeing continued positive momentum in the commercial and industrial channels, Tools & Storage European and emerging markets continue to experience strong momentum as well. And we're currently expecting demand trends in Q1 that are similar to the fourth quarter we just completed. Another way to look at the 30% to 40% Tools & Storage organic growth assumption is that it represents approximately $600 million to $800 million of Q1 organic growth. January, which is historically a very slow month for Tools & Storage, is on track to three or five weeks to deliver $400 million of growth in the month. Additionally, February and March were both negative comps in 2020. Therefore, we believe with a continuation of market demand trends and a modest contribution from safety stock increases across our global customer base, this represents a very strong but reasonably balanced expectation for the first quarter. Turning to Industrial, our first quarter assumes a decline of 5% up to flat organically. To deconstruct this a bit, at the mid-point of this range, we're calling for high single-digit to low double-digit growth in both Attachment Tools, and within automotive engineered fastening, which in total represents a little more than half of this segment. Supporting this Attachment Tools experienced a 50% year-over-year increase in Q4 backlog. In automotive, this assumes a moderation of fastener volume growth to low double-digits, and a less severe decline on easier comps for our systems business. We expect our Industrial fastener business to continuous sequential improvement and be relatively flat. Offsetting these positive factors in Q1, we anticipate steep declines in oil and gas and aerospace. CAM is included in the organic growth calculation partway through the first quarter. As both of these businesses are longer cycle, they held up relatively better when the initial impacts of the pandemic occurred, and therefore will be challenged in the front half of 2021. Turning to Security, our plan assumes for a range of flat to up low single-digits organically in Q1. Exit trends in December for this business were strong, and the backlog ended the year up double-digits, which provides a good setup as we enter Q1, particularly as the easier comps begin in the month of March. Additionally, the business is focused on continuing to stimulate demand with our existing and new health and safety solutions that emerge from the pandemic and started to generate revenue prior to the end of the year. Turning to the right side of this slide, I want to touch on the full-year growth assumptions for all segments and the first and second half planning assumptions for Tools & Storage. As you would expect, we're planning for a very strong first half of the year. We're expecting the strong trends I just talked through for Q1 to moderate in the second quarter but remain quite strong. The continued market recoveries in Security and Industrial, strong demand in Tools and relatively easy year-over-year comps positions the company for an organic growth range of 19% to 24% for the first quarter. For the second half, we have moderated our assumptions to incorporate the difficult comps created by the strong second half 2020 growth in Tools. While we're pushing for more growth and share gains, we felt it was prudent to set expectations for a decline of 3% to 8% organically for the company. This is how we have constructed our overall range of 4% to 8% organic growth for the full-year for Stanley Black & Decker. For Tools & Storage, we're also assuming full-year growth of 4% to 8% which includes organic growth of 27% to 32% in the first half for the reasons previously mentioned, and a decline of 7% to 12% in the back half. While the growth in Tools is retracting versus 2020 in the back half, the range is up 4% to 10% versus the back half of 2019. This is a reasonable two-year assumption based on the historical growth numbers we have seen for this business. That being said, this is a short cycle business and we are ensuring the supply chain can accommodate second half scenarios that are improved versus this range. The potential scenario we must be prepared for is robust Tools & Storage markets that continue for the majority of 2021. We have not assumed this will occur in our guidance, but we will be ready to respond if this does evolve in the coming months. For Industrial, we're assuming 2% to 6% growth in 2021 with a stronger performance in the front half due to the easier comps. Engineered fastening and Attachment Tools have a lot of momentum and we're well-positioned to capitalize upon the recovery as it unfolds in 2021. As it relates to oil and gas and aerospace, we expect they will remain a significant headwind to growth in the front half. But this eases a bit as we move into the back half. Finally, for Security, we see a range for 4% to 6% growth for the full-year. This is fairly consistent across the two halves, as the front half has easier comps and the back half carries a stronger level of growth from the ramp-up of our health and safety focus growth initiatives. We're excited by the prospects for these tech enabled products, which contributed 1.5 points of growth in the fourth quarter and could represent up to $100 million of revenue in 2021. So in summary, we're expecting 4% to 8% organic full-year growth with growth in every segment. We're well-positioned to capture market recoveries and share gains in each of our businesses and feel this is a balanced range that acknowledges the current environment. We'll continue to watch our markets and will be prepared if the back half assumption proves to be conservative. Now I'll summarize the remaining guidance assumptions on Slide 11. We're reinitiating guidance in 2021, with an adjusted earnings per share range of $9.70 to $10.30, up approximately 11% versus prior-year at the mid-point. On a GAAP basis, we expect the earnings per share range to be $9.15 to $9.85, inclusive of various one-time charges related to facility moves, deal and integration costs and functional transformation initiatives. This range is $0.40 wider than our traditional guide, recognizing that while the visibility has improved, the operating environment remains dynamic. Since I just covered organic growth, let's jump right into the cost structure consideration. We expect $125 million of carryover cost savings net of the reversal of temporary actions from the cost program we implemented in the second quarter of 2020. These actions will primarily benefit the first quarter with a modest benefit in the second quarter. From an inflation perspective, we currently see the potential for approximately $75 million of headwind primarily associated with steel, base metals, transportation, electronic components and resins. Keep in mind; we generally lock-in our supply agreements one to two quarters out. So the timing of this headwind is back half weighted. Partially offsetting this headwind to the tailwind of roughly $45 million related to foreign exchange. Therefore, at this point in time, we have included $30 million of a headwind associated with these externally driven cost inputs. Should we see additional pressure in commodities or should currency reverse, we'll utilize our productivity programs and pricing to neutralize the pressure over time. However, specific to 2021, as a reminder, we have $100 million to $150 million of margin resiliency benefit as a contingency, which is not included in our guidance. This contingency will assist in mitigating new headwinds in these areas during 2020 if they emerge. Finally, we have disclosed our current full-year assumptions for the significant below the line items and our expectation for pre-tax M&A and other charges to assist with your modeling. Turning to cash flow, we expect another strong performance in 2021 with free cash flow conversion approximating GAAP net income. Underpinning this expectation is capital expenditures of approximately 3% of net sales. In addition, we will utilize the SBD operating model to drive efficiencies in working capital to deliver turns improvement. Lastly, we expect the first quarter's earnings per share to be approximately 24% of the full-year performance, which is primarily driven by operating leverage on the organic growth assumptions I walked through for Q1 and the $150 million of benefits from the carryover cost actions we have implemented. So in summary, for the total company, we expect 4% to 8% organic growth, and 7% to 14% adjusted EPS expansion. A strong forecast that represents a balance due recognizing the dynamic operating environment, but also incorporates more difficult comps and inflation assumptions into the plan, while delivering healthy margin expansion and EPS growth for the full-year. The organization remains focused on meeting the needs of several ongoing strong and sequentially improving markets. Leveraging our organic growth catalysts as well, executing margin resiliency, and generating strong free cash flow, while not losing sight of ensuring we keep our employees safe, and assisting our communities through the remainder of this pandemic. With that, I would like to turn the call back over to Jim to close out with a summary of our prepared remarks. Jim?

[Jim Loree:]

Thanks, Don. Very clear, very transparent, very exciting. In summary, 2020 was an extraordinary year for Stanley Black & Decker. This performance was possible due to the agility, passion and dedication of our people combined with a strong cultural and financial foundation. It's hard to pick one element to get most enthused about given the 2020 performance, especially in the second half as well as the improving outlook. Is it the growth, the margin expansion or the extraordinary cash flow and the potential for more? Is it a demonstrated resilience of this purpose-driven company? Or is it the enormous potential given the way the company is positioned for 2021 and 2022? In my view, it's all of the above. We're energized by the existence of a multi-year runway for growth and profitability improvement. The shareholder value creation potential is certainly compelling over the medium to long-term. And while pursuing these shareholder rewards, we're also mindful of our responsibility to society and the multiple stakeholders that we serve and our sustained commitment to ESG and social responsibility is strong, authentic, and we continue to elevate it over time. And as you can see, there's a lot to be excited about with our MTD partnership and for 2021, these opportunities are planned to deliver more than $100 million of organic growth for SBD as well as to support additional growth for MTD. So I want to thank everybody. It's been an exciting year. There's a lot of really great things ahead. And now I'll turn it over to Dennis. Dennis?

[Dennis Lange:]

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

[Operator:]

. Our first question comes from Nigel Coe with Wolfe Research. Your line is open.

[Nigel Coe:]

Congrats on beating your $8.90 guidance, you got there in a slightly different way, but well done there. So on MTD, just wanted to just touch on that. There's a bit of confusion out there just want to clarify MTD is not in your guidance at all. Let me just clarify that. And then on the 7 to 8 times EBITDA, updates on a trailing EBITDA, or would that be a forward EBITDA? Just want to clarify that as well. And then just my real question is on the road to mid-teens margins, what do you think are the biggest drivers of that move? And any kind of time scale on that would be helpful? Thanks.

[Jim Loree:]

Okay, thank you, Nigel. To be very clear, there's no acquisition of MTD in the guidance. There's some licensing income associated with some of the opportunities I described in the comments. There's some organic growth in Stanley based on some collaboration with MTD on products that we'll be selling through our own channels and our own brands. But there is no, nothing related to the acquisition in the guidance. The multiple is going to be a trailing multiple, because that's how the option is basically priced. It's based on a trailing EBITDA. And so that's where the 7 to 8 times comes from. And as far as the road to mid-teens operating margin, it's our objective to get the operating margins up to around somewhere around eight-ish percent next year, maybe a little higher if the volume kind of comes through the way we think. And so if we start from say a base of maybe 8% to 10%, there is a whole series of cost reduction value creation activities that exists in a plan, if you will, it's a somewhat high-level plan, because we're not able to get into super detailed diligence at this point. But we have been working with a major consulting firm to come up with some point of view on how we can get to a number something in the neighborhood of probably $50 million to $100 million of additional margin improvement that is not being implemented by MTD for various reasons. One, they may not have the appetite for it, or they may not have the capability to do it. But we have some ideas that are pretty specific in that regard. That gets us up into like the 12-ish kind of zone. And then from 12 to 15, it really is going to be a function of really leveraging the synergies between the companies, the channel synergies, the brand synergies, the growth and also a major thrust into the professional channel. I must say that having spent some time at MTD in September, I was blown away by the quality of their innovation pipeline, the collaboration to the extent we've been allowed to do that through based on certain legal constraints and so on, but the collaboration that we have been able to do in terms of lightweighting, electrification, autonomy, those types of things. It's really, really impressive. And what they've done on their own is impressive too. So the combination of all those things, I expect that we'll make a major thrust into the pro-channel, the products are going to be very, very strong. And when we start branding those products with some of our major brands such as DeWalt, I think there's going to be a really compelling value proposition for the channel and the end user to carry those products and buy those products. So that's kind of where we're going with MTD. You can start to see the -- in the marketplace in 2021, some of the call them collaborations around just the edges without really being 100% owned by us. And the ability for us to generate $100 million of organic growth, just with some, some modest collaboration, in terms of commercial and product is really kind of underlines the potential and the power of this relationship.

[Operator:]

Thank you. Our next question comes from Jeff Sprague with Vertical Research. Your line is open.

[Jeff Sprague:]

Thank you, good morning. Congrats.

[Jim Loree:]

Good morning.

[Don Allan:]

Good morning.

[Jeff Sprague:]

Hard to say where to start, you guys could have just maybe dropped the mike and ended the call. But I was wondering, I guess it's for Don, but maybe elaborate a little bit more on how we should think about Tools margins going forward. As Jim said, you kind of showed us here with the cost back in the base what you can do. But it sounds like there's some investment coming back in and some other things. So should we be thinking about this kind of 18% to 20% range that I think you were talking about on the Q3 call is kind of a reasonable framework, as we pencil out 2021 here?

[Don Allan:]

Absolutely. I mean we feel even more confident now to kind of confirm what I said in October on the earnings call, that that range does make sense for 2021 between 18% and 20%. And you should see all four quarters in that range. So there shouldn't be a lot of significant variation in that regard. There will be a little bit of investment that we will make. But it's going to be more along the lines of some of the growth initiatives that we started here in 2020 in e-commerce and a few other areas. And so we're going to continue to invest in that space that'll drive additional share gains and more organic growth. So, we feel really positive about how the business positioned itself from a profitability perspective and although the rates are in the back half were over 20%. So we'll see a little bit of a retraction going into next year for the reasons I articulated. I think over the long-term, we feel like it's a business that will continue to progress and improve its profitability over the coming years. It won't just be a one or two-year phenomena.

[Operator:]

Thank you. Our next question comes from Markus Mittermaier with UBS. Your line is open.

[Markus Mittermaier:]

Yes. Hi, good morning, everyone. Thanks for all the detail. Maybe in recent weeks, there's obviously been some concern around raw materials. And Don, you mentioned the $100 million to $150 million contingency that is not part of guidance. Just want to make sure that I understood that right that is not part of the guidance. And wondering how quickly, you could put that into effect? And also, what are you seeing up to-date so far on the raw material side? Thank you.

[Don Allan:]

Yes. I'll start with the raw material part of that question. I mean, we saw these trends kind of emerge in October timeframe, November. And in the categories I mentioned, of steel, resin, electronic components. And so that that is going to continue for a period of time, right now, we have $75 million of an increase in those types of categories in our guidance for 2021. I don't think it's going to radically deviate from that, it could go up a little bit as the year goes on. But we do have to keep in mind the way that we structure our contracts, it usually takes a good six months for that to really impact our P&L, which gives us time to respond with pricing actions, if that makes sense or productivity or whatever the case may be. And then that kind of helps us mitigate that over a longer period of time, maybe over a multi-year period of time, those actions. The margin resiliency program is an annual program that we started about three years ago, which was built on, let's look at the different areas of our company, the functions, the operations teams, how we price our products, et cetera and use technology such as Artificial Intelligence, Advanced Data Analytics, and make better decisions in those particular areas to drive efficiency and effectiveness. And we've seen that over the last few years the ongoing process of the team that's been created and the technology that they use; we have about 100 people that are focused on this full time in the company drives about $100 million to $150 million of annual value. Now we could put that in our P&L and make it part of our guidance. But we think it's more prudent involved for times like this to have it outside the guidance as a contingency. And so when new things come your way that are headwinds, you have an offset. These things are underway, they're in process, and so they're driving value this month in all 12 months out of the year. And so if the headwinds don't come, you get the opportunity to position yourself to outperform. And we think it's a very balanced way to approach guidance in the way to operate in this world, given the level of volatility that we've all seen in the last four years, but in particular, the last 12 months.

[Jim Loree:]

And I just wanted to comment, too, on the inflation perception, because it was really interesting, sitting here and listening to some of the feedback from investors over -- from the last couple of weeks about this inflation concern. And we were scratching our heads to some extent, because we've had inflation more often more years than not over the 20 plus years I've been here. And we've always been able to offset a part of it with price and new product in development, new product introductions, and so on. And then there's always productivity that has come through and helped offset the rest of it, and actually given us some decent margin accretion in certain years, even when there was inflation. And so this reflex reaction that, that occurred, which was oh, my gosh, Stanley Black & Decker is inflation prone. It didn't make any sense to us. But then when we thought about it, we realized that if you go back to the 2017, 2018, 2019, kind of timeframe, there was this billion dollars of headwinds that we have all behind us now. And that billion dollars of headwinds was a triad of things, it was the inflation, it was the tariffs, and it was the FX, and a billion dollars was just too big a series of headwinds to just offset with the normal types of offsets that I talked about. So we ended up having to do some restructuring. And by the way, we still generated 6% earnings growth during that timeframe. So it wasn't catastrophic, it was just a lot of work and a lot of pain in order to get through that period, and we did it. But in any one of those, whether it was the FX, or the inflation, or the tariffs, any one of those, we could have handled it easily through our normal contingencies and things like that. But when we put them all together, and that three years in a row, it just -- it became a lot. And so that perception, I think develops. So immediately when the winds of inflation started blowing in the third and fourth quarter, we got this reflex from the investment community. But I think, as of today, I hope that we can put that behind us because it is not a significant material issue to us in 2021.

[Operator:]

Our next question comes from Tim Wojs with Baird. Your line is open.

[Tim Wojs:]

Yes, hey, good morning, guys. Nice start.

[Jim Loree:]

Thanks, Tim.

[Don Allan:]

Thanks, Tim.

[Tim Wojs:]

My question really just, I'm curious if there's a way that you could kind of frame or parse out what you're seeing from the DIY and your Pro business. And I know, it's more of an art than a science, particularly in the home center channel, but just kind of curious and we started to hit tougher DIY comps in the second half, if your Pro business, and the Pro channels can help absorb this. So just any color on DIY versus Pro and if there's any acceleration in Pro that fits into your assumptions?

[Jim Loree:]

Well, I did lay out in my remarks, kind of the things that I thought were driving the demand, which is one is a secular shift to DIY with so many people at home and with the home being the focal point, as well as outdoor, being the focal point of people's activities, and the number of projects and the number of people doing projects and doing projects for the first time is at record levels. And I think another thing is the installed base of battery systems is a big deal, with this kind of growth that we have in 2020 and now into 2021. There are going to be more and more first timers or people that have bought new battery systems, investing in additional tools for their battery systems. And frankly, I think when once people discover DIY; it tends to be somewhat addictive. So I think that, we're going to have, it is a secular shift in my opinion, I think the home center CEOs would agree with that. I've heard them talk about that as well. So that's a big deal. Obviously, it abates over time as the comps kind of get tougher in terms of its percentage impact on growth. And what we saw in 2000, what relative to the Pros was in the beginning the Pros like let's say like April/May projects kind of came to a grinding halt for the most part except for the really essential ones and then into the summer, the Pro started coming back and into the third and fourth quarter, you can't even get a contractor in this country anymore if you want one. So at least I've had that experience. I think the contractors are very busy in the resi and both the remodeling and in the new construction areas. They've got a tremendous backlog. I think they're back. I mean, I think that that has played out. So, as we go forward, I think what we're really looking at is more of kind of going up against the comps and getting back to a more normal environment as we get into 2022 and beyond. But it's -- it is one, it is an artist, you say, and it's difficult to really parse in great detail exactly what's happening. But that is our gut feeling instinct based on what we could see here at this point.

[Operator:]

Thank you. Our next question comes from Nicole DeBlase with Deutsche Bank. Your line is open.

[Nicole DeBlase:]

Yes, thanks. Good morning, guys.

[Jim Loree:]

Good morning.

[Nicole DeBlase:]

Can you just clear something up with respect to the inflation headwind? Is that just the pure inflation headwind? Or is there any offset from pricing embedded in there? And then secondly, my real question is, can you just talk a little bit about expectations for margins within the other two segments, whether you want to talk about expected incrementals on the volume growth that you set out, however you want to do it, but will be good to get some color there, too.

[Don Allan:]

Yes, the $75 million is growth inflation, doesn't have any price offset in it. And we'll work through those plans as these emerge and decide, where it makes sense for pricing actions and when, but it is a gross number. And so that means, the annualized number is probably 125 to 150, when you think about it. So -- and that's the right magnitude at this stage for these different areas. The areas that really are being hit hard are steel, resin, electronic components, and then battery cells or base metals, if you want to call it, however you want to call it, but those four categories are things that there's a high demand for right now, as we all know. The question is, how long does that demand last? Is there a parts of the economy that are really going strong, and there's other parts of the economy that are not, that have not recovered as well, and the timing of that recovery is going to depend on how the vaccines roll-out, and how we eventually get the herd immunity, and how quickly that occurs. So, we could be seeing a short-term bubble here that maybe moderates for a period of time, or it could be something that continues to grow modestly over multiple years. So time will tell. But I think we've got that in the right box right now. And it's something we can manage going forward with all the levers that I described. The other two segments for profitability improvement, I could -- I could probably give you all kinds of leverage factors. But I think it might be simpler to just say, if you think about the whole company's operating margin, right, we're trying to improve about 50 basis points year-over-year. Tools is trying to improve roughly the same number, maybe a little bit more and so that means Industrial and Security are going to improve about same number too. So I think you can kind of look at a 50, anywhere from 40 to 50 basis point improvement in all three segments, with the net result for the company about 50 basis points for the full-year.

[Operator:]

Thank you. Our next question comes from Josh Pokrzywinski with Morgan Stanley. Your line is open.

[Josh Pokrzywinski:]

Hey, appreciate all the detail this morning, especially on the inflation front. So I only have one question. I don't have like three imaginary ones and a real one. Just thinking about the 4% to 8% Tools & Storage growth for the full-year, Jim, I think you gave some parameters around inventory. Seems like it rounds to something in the neighborhood of two points of kind of full-year benefit from replenishment if we're way off with that, let us know. But is the rest of that, kind of evenly split North America and international, I think if I'm taking some of the inputs and making some assumptions that the team play kind of core growth in the U.S. business inclusive of Pro is pretty modest actually stock, is that kind of a fair calibration of the moving pieces?

[Jim Loree:]

Yes. I think it is. It's -- we -- we were talking about four weeks probably is a reasonable number to improve. It is a global number we're talking about because we do see opportunity across the globe, probably heavily, more heavily weighted to North America because we know those inventories are definitely at the very low end of the range of where we like to be. And so maybe 75% to 80% of it is weighted to the U.S. and North America. But I think when you think about the growth that could come with that, it's probably a couple points of growth, maybe two-and-a-half points of growth for the full-year, which means it could be five points in the first half. So that's the magnitude we're talking about. And I think we'll see it start to evolve in Q1. But it might be more heavily weighted to Q2, because the POS just seems really robust in Q1 at this stage.

[Operator:]

Thank you. Our next question comes from Michael Rehaut with JPMorgan. Your line is open.

[Unidentified Analyst:]

Hi, this is Alaei Homan on for Mike. Thanks for taking my question. Just following-up on that. I was wondering if you could talk about your ability from a production and inventory standpoint, to continue to meet the strong POS demand, both in 1Q and just through the remainder of the year ramp-up. And any potential challenges either in capacity or other COVID-19 impacts?

[Jim Loree:]

Yes. We were very fortunate that we were able to really -- first of all, we started the year with a really solid on inventory position, both in the company and in the channels, which are at least in North American channels, where the demand really spiked. And so that, that was helpful, because it was kind of a strange situation, but it got into May. And we were looking at POS that was starting to skyrocket and the orders were not coming in from the channel. And so we ended up building quite a bit of inventory, starting in May, actually over $500 million of inventory we built to serve POS demand that was occurring, and we had to kind of bet that the POS was going to continue at that rate, and it did. And that enabled us to really get ahead of the situation so that we've been. Now, if you look at us at this point in time, we're essentially serving the POS and have them for two quarters now. And we're able to do that. Our end user -- our end users continue to be very, very robust in buying Tools, and our channel partners would like more, they would like their inventory restored. That is the challenge. And so one of the things that we've done, and we were also very fortunate from the standpoint of are made in our "Make Where You Sell" campaign that we've been working on for three or four years had some pretty significant capacity additions, both in Mexico and in North America and in the U.S., and a number of those are either online or coming online, including a major plant in Mexico and a major plant in the U.S. in later in 2021. And so as we look forward, we're not counting on those to necessarily get the inventories to where they need to be in the channels. But we're looking forward to the fact that we will have more capacity in the system significantly more capacity as we get into 2021. So we're not too concerned about that. In the meantime, there's a tremendous amount of inefficiency that's been built into our cost of goods sold here in the second, third and fourth quarters, especially the third and fourth quarters where in order to meet the fill rate objectives and keep the inventories at the levels that we've been able to, we've done a lot of heroic things that have been costly, things like air freight and expediting and items of that nature. And those items, ultimately will be released, I think to some extent by the capacity coming online in the future. But in the meantime, they're kind of built into the run rate, you can see the margins are even with those inefficiencies are pretty good. And we have really pushed our supply chain hard to serve our customers thus far, and it's been successful as you can see.

[Operator:]

Thank you. This concludes the question-and-answer session. I would now like to turn the call back over to Dennis Lange for closing remarks.

[Dennis Lange:]

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

[Operator:]

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.