Earnings Recap — Q2 FY2026
CY Q3 2026 · Reported July 29, 2026 · Beat 7 of last 7 quarters
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SWK's strong performance in the U.S. commercial & industrial channel, driven by data center and power generation construction, underscores the physical buildout of AI infrastructure. The company's DEWALT project solution managers and ecosystem approach are directly tied to large-scale construction projects, positioning SWK as a beneficiary of the multi-year capital spending wave. This reinforces the thesis that AI infrastructure demand extends beyond chips and servers to the tools and equipment used in construction.
Q2 revenue was roughly flat YoY at $3.96B, with organic growth of 3% driven by volume strength in U.S. retail and C&I channels. Adjusted gross margin expanded 620 bps to 33.7%, including ~250 bps from net tariff refunds, and adjusted EBITDA margin rose 320 bps to 11.3%. Adjusted EPS of $1.57 beat guidance by $0.37, aided by below-the-line items and tariff refunds. Tools & Outdoor organic revenue grew 3% (power tools +8%, hand tools/accessories/storage +2%, outdoor -7%), while Engineered Fastening grew 3% organically despite the CAM divestiture. The company used CAM proceeds to reduce debt by $1.7B and repurchased 3.2M shares for $250M.
Management raised and tightened full-year 2026 adjusted EPS guidance to $5.20–$5.80 (18% growth at midpoint, +$0.20 vs prior midpoint). The increase reflects ~$0.15 of below-the-line favorability (lower interest, share repurchases) and ~$0.05 net tariff refund benefit. Revenue outlook unchanged: total revenue roughly flat, organic growth low single digits. Full-year adjusted gross margin expansion of ~150 bps (ex-tariff refunds) reiterated, with second-half gross margin conviction at 34%–35%. Management expects temporary tariff tailwinds to be offset by persistent inflation (battery metals, tungsten, oil), and noted a price increase is 'more likely than not' by 2027. They plan to reinvest tariff refunds into growth initiatives (SG&A up ~60 bps) and remain on track for net debt/EBITDA of ~2.5x by year-end. Free cash flow guidance raised to $600M–$800M (or $800M–$1B ex-CAM payments).
“We expect our U.S. commercial and industrial channel annual sales to approach 10% of total Tools & Outdoor sales in 2026, assuming roughly double-digit organic growth this year.”
on C&I channel growth
“Given inflationary pressures remain persistent, it appears more likely than not a price increase will be necessary by 2027.”
on Pricing outlook
“We are firmly on track for net debt to adjusted EBITDA to be at or around 2.5x by year-end, inclusive of buybacks.”
on Balance sheet
Can you add color on the rebound in power tools (8% growth)? What changed and how sustainable is that growth?
Chris Nelson attributed the strength to increased placement with key channel partners, benefits from the product development pipeline across DEWALT, STANLEY, and CRAFTSMAN, and sharper promotional focus that is accretive to margins. He expressed excitement about momentum and noted growth across all three core brands.
How are you deploying the tariff refund investments so efficiently? Are you pulling forward 2027 investments?
Chris Nelson confirmed investments are going into go-to-market activation, feet on the street, social media brand activation, and new product pipeline. He acknowledged some acceleration of 2027 investments into 2026, and said they have a multiyear roadmap for further investments if additional refunds materialize, though none are in guidance.
Did Q2 underlying performance come in relative to your internal forecast? Were there cost/productivity actions shifted?
Patrick Hallinan said Q2 was very much in line with expectations, with slight positives on sales and gross margin. The outperformance came from below-the-line items (interest, pension, discrete tax) and tariff refunds. He reiterated that the back half will include growth investments, reducing the net tariff benefit from $0.17 in Q2 to $0.05 for the full year.