Stanley Black & Decker Reports 2Q 2016 Results

7/22/16

Stanley Black & Decker (NYSE: SWK) today announced second quarter 2016 financial results.

  • 2Q'16 Revenues Totaled $2.9 Billion, Up 2% Versus Prior Year, Fueled By 4% Organic Growth
  • 2Q'16 Operating Margin Rate Expanded 140 Basis Points To A Post-Merger Record 15.8% Despite Significant Currency Headwinds
  • 2Q'16 Diluted EPS Was $1.84, Up 19% From 2Q'15 As Strong Operational Performance Combined With A Lower Share Count More Than Offset Currency Headwinds
  • Raising 2016 Full Year Diluted EPS Guidance Range To $6.30 - $6.50 (Up 6% - 10% Versus 2015) From$6.20 - $6.40, Due To Higher Organic Growth And Further Cost / Productivity Actions; Reiterating Free Cash Flow Conversion Of Approximately 100%
  • Announced Launch Of Game-Changing DEWALT FLEXVOLT™ Battery System In June As First Major Output Of Company-Wide Breakthrough Innovation Initiative; New Battery Technology Offers Up To 120 Volts Of Power In Cordless Tools
  • Company Separately Today Announced CEO Transition; John F. Lundgren To Retire As CEO, EffectiveJuly 31, 2016 And Continue As Chairman Of The Board Through Year-End 2016; James M. Loree, Currently President And COO, To Succeed Mr. Lundgren And Join The Board

2Q'16 Key Points:

  • Net sales for the quarter were $2.9 billion, up 2% versus prior year, as positive volume (+3%) and price (+1%) more than offset currency (-2%).
  • Gross margin rate for the quarter was 38.5%, up from prior year rate of 36.9% as price, productivity, cost actions and commodity deflation more than offset unfavorable currency.
  • SG&A expenses were 22.7% of sales compared to 22.5% in 2Q'15 reflecting continued tight cost management while making operating cost investments in key SFS 2.0 initiatives.
  • Operating margin rate was 15.8% compared to 14.4% in 2Q'15, as operational actions to improve profitability more than offset approximately $40 million of unfavorable currency.
  • Restructuring charges for the quarter were $10.2 million compared to $5.0 million in 2Q'15.
  • Tax rate was 25.0%, consistent with 2Q'15 rate.
  • Average diluted shares outstanding for the quarter were 147.3 million versus 152.7 million last year, reflecting the impact of share actions.
  • Working capital turns for the quarter were 8.2, up 1.2 turns from 2Q'15 resulting from our continued focus on working capital management.


Stanley Black & Decker's Chairman and CEO, John F. Lundgren, commented, "Our results for the quarter as well as the first half of the year demonstrate the successful execution of our strategy to leverage our world-class franchises and brands to deliver above-market organic growth, meaningful operating leverage and strong free cash flow conversion, while maintaining a balanced capital allocation approach, creating sustainable value for our shareholders.

"Although we continue to face a challenging operating environment, including the potential fall-out from Brexit, we remain confident in our ability to navigate through such conditions given our robust innovation, organizational agility and our increasing capability to consistently execute at a high level."

CEO Transition

In a separate press release issued today, the Board of Directors of Stanley Black & Decker announced that Mr. Lundgren, who will turn 65 in September, will retire as CEO after more than 12 years with the Company, effective July 31, 2016. Mr. Lundgren will continue as Chairman of the Board until the end of the year and serve as Special Advisor to the Company through April 30, 2017. James M. Loree, currently President and Chief Operating Officer, will succeed Mr. Lundgren as President and CEO on August 1, 2016 and join the Board at that time.

Mr. Lundgren said, "Today the Company is stronger than ever, making it the ideal time for our long-planned CEO succession. I look forward to ensuring a smooth transition and I am confident that the Company will continue to thrive under Jim's leadership."

President and Chief Operating Officer, James M. Loree, commented, "We posted another strong quarter with total organic growth of 4% along with a record operating margin rate of 15.8%, reflecting our focus on organic growth and our business units' ability to execute in challenging markets. Our Tools & Storage team delivered 8% organic growth, growing in all regions, despite difficult comparables and weakness in the industrial channel and certain emerging markets. Security posted its third consecutive quarter of year over year operating margin rate expansion as the business' operational performance continued to improve around the globe. Importantly, other key performance indicators such as order rates, attrition and backlog remained at targeted levels. Although the Industrial segment's organic revenues declined more than anticipated due to an ongoing strategic repositioning of the electronics business, the segment maintained a solid operating margin rate by continuing to diligently manage costs.

"We continue to make significant progress with instilling the tenets of SFS2.0, our enhanced operating system, into our culture. The recent launch of the revolutionary DEWALT FLEXVOLT system is the first example of Breakthrough Innovation under SFS2.0, with more to come. We believe that the benefits of SFS2.0 are clear and compelling – sustained, outsized organic growth, margin expansion and asset velocity – key ingredients to creating exceptional shareholder value over the long-term."

2016 Outlook

Donald Allan Jr., Senior Vice President and CFO, commented, "We are raising the range of our 2016 EPS outlook to $6.30 - $6.50 from $6.20 - $6.40 and are maintaining our free cash flow conversion estimate of approximately 100%. Our revised 2016 EPS outlook reflects the net favorable impact of stronger organic growth within our Tools & Storage business, which is expected to more than offset weaker Industrial growth, combined with incremental cost and productivity actions, which in the aggregate more than offset higher currency headwinds and other incremental costs. As such, we are increasing our organic growth outlook for the year from approximately 3% - 4% to approximately 4%. We believe we are well positioned to deliver on our updated 2016 financial commitments given our strong operational execution, as well as our ability to manage our investments to support organic growth and take proactive actions to mitigate currency headwinds. In addition, our capital allocation commitment to return approximately 50% of free cash flow to shareholders through dividends and opportunistic share repurchases and deploy the balance towards acquisitions remains intact."

The Company will host a conference call with investors today, July 22, 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 39191695. 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 39191695. 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.