Stanley Black & Decker, Inc. (SWK) Q4 2021 Earnings Call Transcript

Welcome to the Fourth Quarter and Fiscal Year 2021 Stanley Black & Decker, Inc. Earnings Conference Call. My name is Shannon and I will be your operator for today's call. At this time, all participants are in 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 Vice President of Investor Relations, Dennis Lange. Mr. Lange, you may begin.

Thank you, Shannon. Good morning everyone and thanks for joining us for Stanley Black & Decker's 2021 fourth quarter and full year conference call. On the call, in addition to myself, is Jim Loree, CEO; Don Allen, President and CFO. And our earnings release, which was issued earlier this morning and the supplemental presentation, which we'll refer to during the call are available on the IR section of our website. A replay of this morning's call will also be available beginning at 11 A.M. today. The replay number and the access code are in our press release. This morning, Jim and Don will review our 2021 fourth quarter and full year results and various other matters followed by a Q&A session. Consistent with prior calls, we are going to be sticking with just one question per caller. And as we normally do, we will be making some forward-looking statements during the call 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 the actual results may materially differ from any forward-looking statements that you may 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 filing. I'll now turn the call over to our CEO, Jim Loree.

Good morning and thank you, Dennis. As you saw from our press release, we delivered a record year in 2021 for revenue, organic growth, and EPS. We benefited from extraordinarily strong customer demand, which continues for our innovative products and portfolio of brands, both of which underpin and support our position as the world's number one tool company. I want to thank our colleagues across the globe for their unwavering commitment to serve our customers with the highest quality products as well as for their outstanding effort in helping to deliver this record-setting performance amidst the confluence of COVID era challenges related to supply chain inflation and other external factors. And during the year, we took several significant strategic actions to optimize our business portfolio, completing two outdoor power equipment acquisitions, adding $3 billion of revenue as well as the announced divestiture of our Electronic Security business for 16 times EBITDA, sharpening our focus on tools, outdoor, and industrial. These transactions are reshaping our portfolio into a faster-growing, more profitable one with lots of runway to both support and benefit from the ESG movement as well. This portfolio will also benefit from important societal trends, including household formation, increased consumer nesting with focus on the home and garden, electrification, and infrastructure investment. In addition, this month, we plan to begin the return of $4 billion of capital to our shareholders through our previously announced share repurchase program, including as much as $2 billion to $2.5 billion in the first quarter of 2022. We believe these transactions, the acquisitions, the divestiture, and our substantial repurchase will result in significant value creation for investors in the short, medium, and long-term. To summarize our 2021 performance, our revenues were $15.6 billion, up 20%, driven by a record 17% organic growth, with all businesses contributing. Our total company operating margin rate for the year was 13.9%, down versus the prior year due to the growing cost inflation and supply chain challenges that emerged as the year progressed, as we chose to take the necessary steps to deliver for our customers. We see this core margin rate as a temporary trough, given that we expect our continued 2021, 2022 pricing actions will be sufficient to fully offset the $1.4 billion of cost growth associated with inflation and increased cost to serve during the same two-year time period. Full year 2021 adjusted EPS was $10.48, a 30% increase versus 2020. And for the year ahead, we have a proactive plan and approach that is focused on execution, growth, margin improvement and strong cash flow. Our teams are focused on leveraging our operating model and execution principles that have allowed us to deliver consistent, strong revenue and EPS growth over many years, including in 2021. Although, we were pleased with the total year revenue and EPS performance, the fourth quarter was challenging, with supply chain and inflationary impacts, which impacted working capital. We strategically prioritized building additional inventory in 2021 to capture the strong demand. And in addition, we experienced the impacts from the clogged supply chain, which intensified as the year progressed as component shortages, shipping delays and inflation drove inventory levels even higher. Accordingly, free cash flow for the year was $144 million, which reflects a $1.8 billion increase in inventory. Suffice it to say this working capital increase was higher than anticipated, unnecessary but partially temporary investment which will reverse by at least $500 million this year, converting working capital back to a cash generator during the year. Our team has a long history of driving working capital turns improvement and asset efficiency with our SBD operating model. We have comprehensive enterprise-wide plans in place to ensure we serve our customers while also delivering strong cash flow in 2022 and beyond. Looking specifically at the fourth quarter. Revenue was up 2% to $4.1 billion with 5 points of price, 6 points from acquisitions. Volume was down 8% due to promotional shipment timing in 2020 and was impacted by logistical supply chain challenges as well. Overall, we remain confident in our multi-year growth and margin expansion plans. There are several positive secular demand trends that are benefiting our businesses. We remain bullish on construction, DIY as well as gradual recoveries in the automotive and aerospace OEM markets. We've developed an array of growth catalysts, including product innovation, e-commerce and electrification to position our businesses to capture this opportunity. And we are continuing to focus on innovation, manufacturing, automation, capacity expansion and our logistics capabilities to meet the elevated demand in the near-term and support strong sustainable growth over the medium and long term. In this regard, we believe that we are well positioned in 2022 with a target of 7% to 8% organic growth; total revenue growth aggregating over $4 billion; adjusted EPS growth of 15% to 19%; and $2 billion of free cash flow. As noted, our tools and outdoor businesses enjoyed high demand levels across our global markets and channels. And as we think about some of the causal factors in North America, many of the traditional drivers of housing and repair/remodel activity are trending in a positive direction. Household formation, driven by millennial first-time home purchasers as well as the urban exodus support strong housing demand and the low levels of existing housing inventory will continue to be a catalyst for new residential construction. Home prices have appreciated, building home equity, which generally supports home reinvestment growth through repair and remodel activity. In recent years, the consumer mindset and behavior patterns regarding home and garden have shifted as more time is spent in these environments. Homebase for many has grown in importance, serving multiple purposes including as a sanctuary, as a locus for increased indoor, outdoor activities and as a workspace for more permanent remote and hybrid workers. These behavioral shifts are driving robust project activity for both contractors and DIYers not only in the US but globally as well. Leading indicators for non-residential construction, such as ABI and Dodge rebounded during much of 2021 and have remained positive as construction activity has continued to recover. Industrial production is returning to pre-pandemic levels as manufacturers look to replenish their supply chains. The growth momentum that we built in 2021 in our industrial fastener and attachment tools businesses is expected to continue in 2022, and we expect to benefit from the recently signed $1.2 trillion US infrastructure bill as well. And lastly, we are cautiously optimistic that the cyclical recovery in auto and aerospace will begin to emerge in 2022, a $300 million to $400 million multi-year revenue growth opportunity for industrial. And so while there is much to be excited about within our core markets, we will carefully watch for any impacts from a higher interest rate environment or changes in the elasticity of demand following price increases and react accordingly if things change. To keep our market and brand vitality fresh, we continue to invest selectively in growth catalysts, including innovation, e-commerce and electrification. These will position us for sustained share gains in the future. These catalysts capitalize on key global trends, many of which are expected to continue in the coming years. Across the board, we have competitive strategic differentiators that make us the world's leading tool company. Our iconic brands, DEWALT, Craftsman, Stanley, STANLEY FATMAX and BLACK+DECKER, our category depth, channel development and operations excellence are coupled with a track record and commitment to market leading innovation. Our new power stack battery system launched in December is enjoying an excellent market reception and has the potential for several hundred million dollars of organic growth in 2022. Popular Science called it, ‘the best cordless power tool battery we've ever used.’ With our sharpened focus and increased innovation investments, our product development plans are robust as we look to nearly double the number of professional power tool products we offer over the next three years. The rapid acceleration and the shift of demand to e-commerce has continued, and we believe that we have at least twice the revenue in this channel as our next closest competitor. In 2021, we continue to enjoy strong double-digit growth in e-commerce, and it now represents a $2.5 billion channel for us globally and it's approaching 20% of our tool business revenue. The increased societal focus on ESG and climate and what that means for electrification presents a very attractive multi-year opportunity for outdoor power equipment. Our existing business grew almost 40% in 2021 as we continue to drive the conversion of handheld units and push mowers to cordless electric. With the addition of MTD and Excel in late 2021, we have assembled a $4 billion outdoor power franchise, which will lead the conversion of larger equipment such as riders and zero turns to electric and autonomous as well. We have the ability to capitalize on the electrification of automotive as well through engineered fastening. This moves from internal combustion to plug-in hybrid and EV platforms ultimately results in a 3 to 6x increase in Stanley Black & Decker dollar content per vehicle produced by OEMs. We are also focused on the other growth and revenue synergy opportunities in outdoor, such as global channel expansion and brand development. We have a compelling opportunity to serve the professional customer segment by developing gas and electric offerings under the DEWALT brand, among others. We now have access to more than 2,500 independent equipment dealers across the US that carry leading-edge higher-margin products, which serve a professional user. This dealer channel opportunity is compelling as it is sized similarly to the retail channel, but comes with historically higher profitability. Finally, we have an opportunity in the $4 billion high-margin parts and service segment as we build our presence, serve our customers. I'm excited to share that we are updating our expectations for 2022 EPS contribution from these outdoor acquisitions. MTD had a strong finish in 2021 and was able to outperform our initial plan for both revenue and margin. They also remain on track with their margin improvement trajectory as they did a nice job in 2021, implementing price actions to counter inflation and are continuing to do that in 2022. With a higher '21 base and improved forward outlook, we now expect our outdoor acquisitions to contribute $0.85 of EPS in 2022. This represents a $0.20 improvement and a $0.60 year-over-year tailwind for EPS growth. As I sum up my section today, I am excited by the portfolio changes we affected in 2021. The establishment of a high potential outdoor platform, the Security business divestiture and a commitment to repurchase $4 billion in 2022 all set the stage for value creation this year and beyond.

Thank you, Jim, and good morning, everyone. As Jim mentioned, we are focused on meeting strong demand and investing in our supply chain to ensure ongoing growth. In 2021, we implemented several strategies to navigate the global supply chain, setting up our business for capacity, sourcing, operational efficiency, and resilience, which will enable us to serve our customers and drive significant revenue and cash flow growth in 2022 and beyond. Key investments included increasing capacity in line with our Make Where We Sell strategy, co-investing with strategic sourcing partners focused on batteries and semiconductors, and investing in automation solutions to enhance productivity, labor efficiency, and competitive costs. Our capacity expansions are progressing well, with the opening of two new power tool plants and one new hand tool facility in North America, which are now ramping up. These new manufacturing sites will allow for shorter lead times and promote regional supply chain development over time, enhancing local sourcing and speed to market. Regarding strategic sourcing, we've added new battery suppliers and made co-investments with key partners, positioning us well as we enter 2022. We have sufficient battery supply and capacity for significant tool growth and to support our outdoor electrification strategy. The supply situation remains challenging for semiconductors and electronic components, compounded by an elongated global supply chain that considerably increased inventory in transit, impacting our ability to generate more volume in the fourth quarter. Semiconductor shortages have been a challenge for many global industrials, and we have invested to improve supply and facilitate substantial tool growth. For instance, we are adding new Tier 2 and 3 suppliers for chips, co-investing with Tier 1 suppliers to enhance their capacity, and implementing measures to reduce lead times across our supply base. As mentioned in October, we expect semiconductor supply to improve in Q2 compared to current levels, anticipating a 20% to 30% increase in chips in Q2 against the current run rate. In summary, we are actively working to relieve constraints on key components and are now down to a few critical ones that will enable more supply as we move into the second quarter. We are also advancing our Industry 4.0 capabilities and driving automation in our manufacturing environment, making our U.S. plants more competitive and improving productivity globally. We have just completed a significant flexible automation assembly line in our major U.S. power tool plant, which is now operational. Last year, we also made substantial investments in inventory to meet the heightened demand in the tools sector. Excluding the impact from acquisitions, we increased our core inventory position by $1.8 billion compared to year-end 2020. Two-thirds of this increase consists of inputs, work in progress, or goods in transit that will flow through our supply chain to support growth and improve fill rates for our customers. Consequently, our fourth quarter free cash flow was $175 million, bringing our year-to-date total to $144 million, which is significantly lower than our prior expectations for 2021. The primary driver of this deviation was the congestion in the global supply chain affecting working capital. Allow me to elaborate further. First, we ended up building more inventory in tools than anticipated, primarily due to goods in transit that expanded over the quarter due to port and logistical delays. The increased inventory is essential to meet current and projected demand, and we believe we will sell through this additional inventory in 2022. Second, we are retaining inventory longer than usual due to extended shipping and lead times, which has changed the dynamics between inventory and payables, further contributing to the deviation from our October expectations. Finally, the inventory build at MTD and Excel ahead of the outdoor season was not included in our forecast back in October due to uncertainty regarding the timing of respective closings. The global supply chain remains dynamic and requires heightened intensity, focus, and agility to adapt to changes and predict dependencies that may not align with past experiences. We have a long-standing history of leveraging the SBD operating model to achieve high asset efficiency, strong cash flow, and superior cash flow returns on investment. With new enhancements to these processes and tools, we will work to mitigate the temporary inventory increase and its impact on accounts payable while maintaining appropriate inventory levels and making CapEx investments to support our strategic growth initiatives. We aim to enhance working capital efficiency in three main areas, which will improve supply chain predictability, optimize inventory locations, and boost inventory turnover from acquired businesses. First, we anticipate opportunities to arise as semiconductor pressures ease in Q2 and supply of electronic components improves. Second, we have established a dedicated team focused on reducing in-transit inventory and optimizing product SKU days of stock to ensure we have the right inventory available when needed by our customers. Third, we are implementing the SBD operating model across our recent acquisitions to enhance efficiency in all working capital aspects. MTD and Excel were acquired around three turns, and we see potential to improve that metric over multiple years. Our management team has successfully navigated headwinds and temporary shifts in business conditions for over two decades, giving us confidence in our ability to enhance inventory turns and achieve at least a $500 million cash flow working capital benefit, which is factored into our $2 billion cash flow commitment for 2022. In summary, the actions we took in 2021 regarding our portfolio and supply chain have positioned us favorably for 2022 and beyond.

Thanks, Don for that immersion into what was a very complicated or complex quarter with a lot of ins and outs in the portfolio and lots of dynamics in the end markets and so on. So thanks for taking the time and really giving a very transparent view there. And so as you've seen and heard, we are focused on continuing to serve the robust demand in our markets. Our multiyear runway for growth is compelling. We talked about adding $2.5 billion of growth in 2021 and then another $4-plus billion in 2022. Our EPS and revenue set records last year, and we expect more of the same this year. So, we're determined that free cash flow will return to record levels in 2022 as the working capital reverts back to a source of cash. And we're confident in our ability to execute in today's dynamic, volatile environment. Our proven track record of performance over many years supports this. Our 6-year revenue and EPS CAGRs, our 6% for revenue, 10% for EPS, respectively, and a new and improved portfolio and a great strategic setup for 2022 and beyond. We're focused on several tactical operational levers to ensure outstanding near-term execution. First, we're leveraging our price productivity and cost control measures to support a margin rebound throughout the year as Don described that. We're well positioned to achieve price covering the entire $1.4 billion of inflation and cost to serve for the 2-year period 2021, 2022. The unusual cost input increases have stabilized for now, and we are monitoring trends closely to ensure that we respond to trend changes as they develop. We're investing in the supply chain to ensure that we have the necessary capacity and supply to fulfill the strong demand and support significant revenue growth this year and beyond. We're off to a good start integrating the outdoor acquisitions, which are positioned to contribute EPS accretion of $0.85 in total, $0.65 year-over-year and $0.20 ahead of our initial expectations. We're driving working capital reductions, which we expect to translate to an impressive cash flow performance in 2022. And lastly, we're expecting to execute on our $4 billion share repurchase program very, very soon. So I'm confident in our collective ability to deliver another strong year in 2022 with outstanding potential for value creation.

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

Hi good morning. A lot of good detail in the slides. Maybe one point I wanted to home in on was on the Tools volume side of things. I think it sounds like you're assuming that tools volumes organically at least down maybe mid-high single digit in Q1 after backing out price, so not too different from the trend year-on-year in Q4. Just wanted to check that that's the case. And then maybe as you think about the balance of the year after Q1, there's clearly a lot going on with people trying to figure out the impact of interest rate increases, maybe we start to see some volume headwind from continuously rising prices. So how conservative do you think your tools volume guide is for the year? I think you're assuming volumes are maybe flattish or down a bit in tools for 2022 overall and down more than that in Q1?

Yeah. I think, Julian, that's a good assessment of where we think we are with the tools and outdoor businesses from a core perspective, obviously on an organic basis. So we – for the year, we're probably looking at a relatively flat volume performance, with a very strong price performance of 6% to 7%, so they're probably leaning closer to 7%. The Q1 dynamic will be volume probably down 4 or 5 points in the first quarter, and then improvement of that kind of modestly as the year goes on. No real big significant volume expectation in any given quarter at this stage. However, we do see that as an interesting opportunity. I mean, there is a lot of uncertainty to your point about where demand may go, what may happen based on all these inflationary pressures and the prices going into the marketplace. So we think we're well positioned by taking the approach we're taking on the price side. But we also see an opportunity that, if demand is strong, we've adjusted our supply chain to be prepared for that and in particular by Q2 on the semiconductor side. And so if demand is there, we'll be able to really meet that demand and improve the fill rates of our customers as well as the inventory levels in the store.

Yeah. The flattish volume is really more of a financial planning construct than it is in operational execution plan. So we are going for as much volume as makes sense and as much as double-digit volume in terms of what we're programming to try to achieve. However, given the uncertainty in the macro, given what remains to be seen in terms of price elasticity of demand for the products, we're trying to be financially conservative here so that, if any of the types of things that I described become factors that we still have a financial plan that makes a lot of sense.

Thank you. Good morning. Maybe to pick up on that point, right? You delivered what you delivered in 2021 with the semiconductor situation as it was. So Jim, I think you're then implying that with what we heard today on the call about semiconductors, there actually is an opportunity to kind of uncork more volume. I just wonder, if that's kind of the linchpin of the whole kind of volume debate in 2022 and if there are any other particular really pinch points or bottlenecks that you need to work through?

Yeah. Come April, I think we're going to be in a position to really open up that well. So it really is a couple of months of constrained production based on that. And then whatever we can get after that, we've got really good supply definitely enough to support double-digit organic growth beyond that. And of course, the other potential constraint, but it's not going to be an issue for us, would be battery cells, and we've got that one under control with investments that we've made in capacity with major battery suppliers. So, we have the capability come April to open the spigot for volume and produce whatever the market demands.

Yes, hi. Good morning. Maybe another one on pricing from my side, the 6% to 7%. Can you maybe elaborate a little bit on the various go-to-market channels you have? Has anything changed in your ability to price with the higher proportion of the online business, B2C or the addition of some of the other end markets that you're now going after? How has pricing changed to maybe what we know from the prior cycle?

Well, I think, Markus, the way to think about it is there is really no cycle in history that you can really compare this to. I mean maybe you could go back to the 1970s and the inflationary periods back then. But the world clearly was much different and e-commerce didn't even exist back in the 1970s. So, it's a very different timeframe. And so when you look at this situation where you're dealing with $1.4 billion of headwinds at Stanley Black & Decker, we put a significant amount of price in the market in 2021. We have not seen an impact to demand related to that in any of the channels that you referenced. We're putting more, as I mentioned, price increases in the market here in the first quarter of 2022, anywhere ranging from 5% to 10%, depending on the product family or category, in some cases, even higher than that if we see significant gaps versus our competitors or we see a situation where a particular product is being impacted more heavily by the commodity inflation headwinds. So, we'll watch this very closely. I mean it's why we're taking this approach on the volume side where we're not being overly aggressive in forecasting where the volume might go. But we're prepared, as Jim and I both mentioned, to really pursue higher volume. But we have to watch the pricing impact very closely and see the elasticity impact, but it's different. It's a different cycle. This is not the typical cycle where you're looking at maybe putting 3% to 4% price increase in the market to offset your inflationary pressures. You're talking about something that's more above 10% in many cases. And if you look at our peers and other players in both the building products and industrial space, you're seeing the magnitude of those types of increases across the board. And we believe that's the right approach at this stage. However, we also have to maintain the flexibility and watch this very closely day-to-day and week-to-week and respond accordingly.

There is a theorem that applies to this type of environment, particularly in the highly inflationary situations found in some developing markets, even if it isn't as focused on supply constraints. For example, Latin America often experiences rapid and significant inflation, usually driven by currency fluctuations. In these markets, our ability to recover prices has been exceptional, and we have a strong track record of stabilizing margins at advantageous rates. We have consistently achieved strong organic growth in these regions over a long period. If the current environment reacts similarly to previous situations, we expect demand to persist. While this is uncharted territory, we are prepared for any circumstance.

Hey good morning, guys. So just a follow up on the price discussion. I think, Don, you mentioned maybe some potential upside from commodities as some of those roll off. How much of the price equation is really tied to something surcharge related where maybe you give some of that back, or I guess, maybe said differently, what are the surcharges tied to in terms of like price benchmarking? And then I guess sort of related, how would you rate your price capture POS relative to what you've seen out of peers? Do you think you're ahead, behind? Some aspect of the competitive environment would be helpful?

I believe the surcharge component we implemented in the fourth quarter is a couple of points of price, primarily due to the cost to serve. We all experienced significant price increases in logistical transportation during the summer of 2021 and into the fall, and this surcharge reflects that. Container costs and other logistics expenses have not changed significantly; they briefly dipped in December but returned to previous levels in January. We do not anticipate substantial shifts in this area, and the supply chain may continue to present cost challenges for part of this year. However, we have noticed that some commodities have seen price reductions recently, such as steel. If these lower prices hold, it could present a $50 million to $100 million opportunity for us later in the year, but it's not a significant change at this point. If trends continue to improve, the opportunity could increase. We are not worried about the pricing actions we've taken or those planned for the first quarter, but we will monitor the situation closely. It's important to remember that it takes time to implement price changes with many customers, which we saw in 2021. We typically experience a lag of about 3 to 6 months compared to what you might see in some industrial sectors versus the building product sector we are more focused on. Consequently, there may be potential benefits down the line as conditions change. This situation will differ from that of industrial peers who may have adjusted prices more quickly in 2021 and experience price reductions sooner in 2022. The dynamics here are shaped by the lag I described and how it influences the building product space.

Thanks. Good morning. You mentioned price elasticity now a couple of times. I'm just wondering if you've seen any signs of that. The POS is strong, but just wondering if you've seen any early signs of that. And it feels like you're prepared to trade lower volumes for higher price. I just want to make sure that's the case. But my real question is, could we just get a bit more definition on how we see the Tools & Storage margins playing out through the year sequentially? It seems like we're starting up at comparable levels to what we saw in Q4 how do we see that building up through the year?

I mean in a perfect world, Nigel, we would want to get our margins back to what they've been historically, and we would want to grow with the market and then in excess of the market, gaining share with our product development and our – all the other growth catalysts that we have. That's what we're aiming to do. Now I've said – I've mentioned price elasticity, because it's a reality of any pricing environment is such that at some point there is a change in the consumer's willingness to purchase something at a given price, and there's a lot of different economic factors that consumers are dealing with right now. And so that's just an unknown. And it's not something that we're prepared – we're not necessarily prepared to trade volume. Let me put it this way, we're not necessarily prepared to trade market share for price. And we will continue to grow our market share. And so we just need to continue to monitor price elasticity, competitive dynamics, all those different things that one does when one manages in an environment like this.

And you mentioned margins and profitability and tools, Nigel. And so as you saw, we had 11.4% in the fourth quarter operating margin for the Tools & Outdoor segment. I think the first quarter will be kind of in that ballpark, maybe a little bit better than that number. Then you see a fairly substantial jump in Q2 and in the back half. We're getting pretty close to that 18% number, in particular in the fourth quarter. So it's going to be a gradual improvement in operating margin rates with a bit of a pretty sluggish start in the first quarter because of the fact, as I mentioned. The fourth quarter of 2021 and the first quarter of 2022 is really the peak periods for the headwinds. And so you're seeing pretty substantial headwinds in both those quarters and then they start to recede going forward after that. So that's just something to keep in mind as you factor in your modeling.

Thanks. Thanks for taking my question. Just to make sure – and apologies, if we're beating a dead horse here, but in terms of where you were on last quarter's earnings call, where you're expecting, I believe, mid-single-digit volume growth, and now for Tools & Storage, flattish. I just want to kind of break down the differences between then and now in terms of the expectations. How much is coming from maybe supply chain constraints, which I think you've said you expect to more fully address in the second quarter and going forward versus conservatism from the price increases and that impact on volume in terms of demand elasticity. Just trying to understand where the differences come from. And if there's any other elements that's driving that change in terms of the end market demand for instance. And then secondly, on the price – the price increases of 6% to 7% company-wide if that is – we could think about that kind of a similar impact in terms of against Tools & Outdoor and industrial if it's a similar type of allocation.

Yes. Michael, regarding what we mentioned in October, we weren't offering guidance, just a general framework. As we move through the fourth quarter and begin to finalize our guidance for the full year in January, now February, we recognize that there are actions we need to pursue in the first quarter of 2022. A 5% increase will not help us achieve our target margins as Jim and I discussed earlier. We truly believe this is the right approach. On the volume side, there are some supply constraints that will carry over into Q1. We expected a better performance in Q1 back in October, but due to the dynamics in November and December, we think it's more prudent to adjust our approach to Tools & Storage organic growth in Q1. Regarding your question about the 6% to 7% increase, were you inquiring about the distribution between tools and outdoor products? What were your thoughts on that?

Yes. So, both segments are tools and industrial.

Yes, I think it's actually when you look at both of those, they are both going after pretty aggressive price actions and there's not a big deviation between the two of them.

Hi, good morning. It seems like there's a big step up in earnings expected from one Q1 to Q2 and I'm assuming that that's related to the supply chain side of things and you've talked about April getting better, but I wonder if you can just expand on the visibility you have into that because I think you're putting a finer point on it than others in terms of the timing of some of the supply chain getting better. But just how secure that is at this point for the visibility it gives you?

When you examine the dynamics of that transition, there is clearly a significant improvement in volume, largely due to the factors related to supply chain and semiconductors that we discussed. Price will also be more favorable in the second quarter compared to the first quarter as a result of the actions we are implementing in Q1, leading to a larger benefit in Q2. Additionally, we will see the full impact of some cost containment measures in Q2. As certain headwinds begin to stabilize and diminish compared to previous years, all of these factors are contributing to the improvements from Q1 to Q2, with volume and price being the main drivers of these changes.

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.

This concludes today's conference call. Thank you for your participation. Everyone, have a wonderful day. You may now disconnect.