Stanley Black & Decker reports Q3 2016 results

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3Q’16 Key Points:

  • Net sales for the quarter were $2.9 billion, up 2% versus prior year, as positive volume (+2%) and price (+1%) more than offset currency (-1%).
  • Gross margin rate for the quarter was 37.6%, up from prior year rate of 36.3% as price, productivity, cost actions and commodity deflation more than offset unfavorable currency.
  • SG&A expenses were 22.4% of sales compared to 21.5% in 3Q’15 reflecting investments in key SFS 2.0 initiatives moderated by continued tight management of costs.
  • Operating margin rate was 15.2% compared to 14.8% in 3Q’15, as operational actions to improve profitability more than offset approximately $35 million of unfavorable currency and higher growth investments.
  • Restructuring charges for the quarter were $9.1 million compared to $14.0 million in 3Q’15.
  • Tax rate was 24.0%, compared to the 3Q’15 rate of 24.5%.
  • Average diluted shares outstanding for the quarter were 148.0 million versus 150.8 million last year, reflecting the impact of share actions taken earlier in the year.
  • Working capital turns for the quarter were 7.1, up 0.7 turns from 3Q’15 reflecting a continued focus on working capital management.

Stanley Black & Decker’s President and CEO, James M. Loree, commented, “For the third quarter, Stanley Black & Decker continued its consistent track record of outperformance.  The Company achieved modestly above-market organic growth and continued margin expansion amid challenging operating conditions through excellent execution of its world-class franchises and brands.  We also continued to make strategic investments for future growth, highlighted by the Newell Tools acquisition, which continues our global expansion in the tools market.

“The Tools & Storage business maintained its strong performance in the quarter, earning share gains across the globe and achieving 5% organic growth with improvements in its operating margin rate.  Security’s performance was also noteworthy with organic growth of 2% and meaningful margin rate expansion as field productivity continues to improve.  Not surprisingly, based on market conditions, our Industrial segment continued to face challenges during the quarter within its channels but maintained its sharp focus on cost management to register a healthy operating margin rate.”

3Q’16 Segment Results
($ in M) 3Q’16 Segment Results
Sales Profit Profit
Rate
Tools & Storage $1,897 $330.0 17.4%
Security $523 $71.4 13.7%
Industrial $462 $80.4 17.4%

 

  • Tools & Storage net sales increased 3% versus 3Q’15 as volume (+4%) and price (+1%) more than offset unfavorable currency (-2%).  Organic growth was solid in North America (+4%) and Europe (+11%), while growth within the emerging markets was modestly positive.  Strong commercial execution supported by market leading product innovation, including the launch of the DEWALT FlexVolt system, continued to drive share gains in North America overcoming both challenging comps and persistent pressures within the industrial channels.  Above-market organic growth in Europe continued as new products, targeted growth investments and an expanded retail footprint fueled share gains across the region.  An intense focus on commercial execution targeted at our mid-price-point product releases and regional pricing actions contributed to slightly positive organic growth in the emerging markets, despite a high level of volatility and economic challenges within a number of regions.  Overall Tools & Storage segment profit rate was 17.4%, up from the 3Q’15 rate of 16.7%, as volume leverage, price, productivity, cost management and lower commodity prices more than offset currency and growth investments.
  • Security net sales increased 2% versus 3Q’15 as volume (+1%), price (+1%) and small bolt-on electronic acquisitions (+1%) were partially offset by currency (-1%).  Organic growth continued in Europe (+1%) on higher installation revenues across much of the region, while North America also posted 1% organic growth, its first quarter of organic growth since the second quarter of 2015, on higher commercial electronic security and automatic door revenues.  Security’s organic growth was also bolstered by double-digit growth within the emerging markets on easing comparables.  Overall Security segment profit rate expanded 180 basis points versus prior year to 13.7%, due to intensified profitability rigor surrounding new commercial opportunities, improved field productivity and SG&A cost control.
  • Industrial net sales decreased 4% versus 3Q’15 due to lower volumes (-3%) and price (-1%).  Engineered Fastening organic revenues declined 6% due primarily to weaker electronics volumes attributable to a major customer (organic revenues were slightly positive excluding this impact), as well as pressured industrial volumes, more than offsetting higher automotive growth.  Infrastructure organic revenues increased 5% as higher Oil & Gas on-shore project activity more than offset lower Hydraulic Tools volumes.  Organic growth for the Industrial segment as a whole was approximately 1% excluding the impact of the aforementioned electronics volume declines within Engineered Fastening.  Overall Industrial segment profit rate was 17.4%, down 40 basis points from the 3Q’15 rate, as lower volumes and currency more than offset productivity gains and cost control actions.

Tools & Storage Acquisition

On October 12, 2016, the Company announced the $1.95 billion acquisition of Newell Tools, which will become part of the Tools & Storage segment.  This acquisition will enhance the Company’s position within the global tools & storage industry and broadens the Company’s product offerings and solutions to customers and end-users, particularly within power tool accessories.   This transaction is expected to close in the first half of 2017.

2016 Outlook

Donald Allan Jr., Senior Vice President and CFO, commented, “We are raising the mid-point and tightening the range of our 2016 full year EPS outlook to $6.40 to $6.50, up 8% to 10% versus 2015, from $6.30 – $6.50and reiterating our free cash flow conversion estimate of approximately 100% of net income.  We continue to be encouraged by our year-to-date operating performance, including our strong year-over-year free cash flow, and believe we are well positioned to achieve our updated 2016 financial commitments for the balance of the year based on our consistently strong execution in the face of still challenging operating conditions, particularly within the industrial channels and emerging markets.

“As we look ahead into 2017 we remain committed to and confident in our ability to continue delivering solid organic growth, operating leverage and strong free cash flow conversion given our seasoned and agile leadership team, track record of outperformance, and our focus on robust innovation and the other aspects of our SFS 2.0 operating system.

“Finally, while we remain committed to our long-term capital allocation practice of returning approximately 50% of free cash flow to shareholders through dividends and opportunistic share repurchases and deploying the balance towards acquisitions, our near term cash deployment will be skewed towards funding the pending Newell Tools acquisition.”

The Company will host a conference call with investors today, October 27, 2016 at 8:00 am ET. A slide presentation which will accompany the call will be available at www.stanleyblackanddecker.com and will remain available after the call.

You can also access the slides via the Stanley Black & Decker Investor Relations iPad & iPhone app from the Apple App Store by searching for “SWK Investor Relations”.

The call will be accessible by telephone within the U.S. at (877) 930-8285, from outside the U.S. at +1 (253) 336-8297, and via the Internet at www.stanleyblackanddecker.com. To participate, please register on the web site at least fifteen minutes prior to the call and download and install any necessary audio software. Please use the conference identification number 86062743. A replay will also be available two hours after the call and can be accessed at (855) 859-2056 or +1 (404) 537-3406 using the passcode 86062743.  The replay will also be available as a podcast within 24 hours and can be accessed on our website and via iTunes.

Stanley Black & Decker, an S&P 500 company, is a diversified global provider of hand tools, power tools and related accessories, mechanical access solutions and electronic security solutions, healthcare solutions, engineered fastening systems, and more. Learn more at www.stanleyblackanddecker.com.

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