Stanley Black & Decker Reports 1Q 2016 Results

OREANDA-NEWS. Stanley Black & Decker (NYSE: SWK) today announced first quarter 2016 financial results.

• 1Q'16 Revenues Totaled $2.7 Billion, Up 2% Versus Prior Year, Fueled By 5% Organic Growth
• 1Q'16 Diluted EPS Was $1.28, Up 20% From 1Q'15 As Strong Operational Performance Combined With Lower Share Count And Lower Restructuring More Than Offset Severe Currency Headwinds
• Raising Full Year Organic Growth Estimate From ~3% To 3-4%
• Raising 2016 Full Year Diluted EPS Guidance Range To $6.20 To $6.40 (Up 5% To 8% Versus 2015) From $6.00 To $6.20, Due Primarily To Modestly Higher Organic Growth And Approximately $40 Million Reduction In Foreign Currency Headwinds; Reiterating Free Cash Flow Conversion Of Approximately 100%

1Q'16 Key Points:

• Net sales for the quarter were $2.7 billion, up 2% versus prior year, as positive volume (+4%) and price (+1%) more than offset currency (-3%).
• Gross margin rate for the quarter was 36.6%, down from prior year rate of 37.0% as price, productivity, cost actions and commodity deflation were more than offset by unfavorable currency.
• SG&A expenses were 23.5% of sales compared to 23.7% in 1Q'15 reflecting continued tight cost management.
• Operating margin rate was 13.1% compared to 13.3% in 1Q'15, as operational actions to improve profitability were more than offset by approximately $35 million of unfavorable currency.
• Restructuring charges for the quarter were $8.0 million compared to $24.9 million in 1Q'15.
• Tax rate was 25.8%, relatively flat to 1Q'15 rate.
• Average diluted shares outstanding for the quarter were 147.6 million versus 156.5 million a year ago, reflecting the impact of share actions.
• Working capital turns for the quarter were 7.0, up 0.4 turns from 1Q'15 resulting from our continued focus on working capital management.

Stanley Black & Decker's Chairman and CEO, John F. Lundgren, commented, "Our positive results in the first quarter reflect our focus on generating above- market organic growth, meaningful operating leverage and strong free cash flow conversion for the full year, while executing a capital allocation strategy that creates sustainable value for shareholders. We are pleased to have achieved 5% organic growth and a 20% year over year increase in earnings per share, reflecting strong performances by many of our businesses. 

"We believe our strategy positions us well to manage through a persistently difficult operating environment by leveraging our world-class franchises and brands, and driving operational excellence throughout the enterprise."

1Q'16 Segment Results

• Tools & Storage net sales increased 4% versus 1Q'15 as volume (+7%) and price (+1%) more than offset unfavorable currency (-4%). Organic growth of 8% was broad based across the globe with North America +10%, Europe +5%, and emerging markets +9%. The U.S. construction tool market remained robust while new products, brand extensions and strong commercial execution continued to generate share gains in North America. Pressure, albeit less than expected, persisted in the industrial channels. In addition, favorable weather conditions in much of the U.S. contributed approximately one to two points of growth for Tools & Storage in the quarter. Europe's share gains also continued with another quarter of above-market organic growth from new products and an expanded retail footprint. Organic growth within the emerging markets was encouraging, driven by ongoing success of our mid-price-point product releases as well as price realization and easier comps. These markets remain challenging, however, intensified commercial excellence efforts across the region continue to drive significant above-market revenue growth. Overall Tools & Storage segment profit rate was 15.3%, down as expected from the 1Q'15 rate of 15.7%, as volume leverage, price, productivity, cost management and somewhat lower commodity prices were more than offset by currency.
• Security net sales decreased 1% versus 1Q'15 as price (+1%) and flat volumes were more than offset by currency (-2%). Europe continued its momentum posting 3% organic growth on higher installation revenues across a broad swath of countries. North America's organic revenues were down 1% due primarily to lower volumes within the automatic doors business. Overall Security segment profit rate was 11.9%, the highest first quarter rate since 1Q'12 and a 110 basis point increase versus prior year, reflecting improved operating performance within both North America and Europe.
• Industrial net sales decreased 5% versus 1Q'15 due to lower volumes (-3%) and currency (-2%). Engineered Fastening organic revenues declined 4% in line with expectations due primarily to lower industrial and electronics volumes and a challenging automotive comp stemming largely from prior year system sales. Infrastructure organic revenues were flat as higher Oil & Gas volumes from increased on-shore activity offset lower Hydraulic Tools volumes due to a difficult scrap steel market. Overall Industrial segment profit rate was 16.5%, up 120 basis points from the 1Q'15 rate, as productivity gains and cost control, particularly within Engineered Fastening, more than offset the impact of currency and lower volumes.

President and Chief Operating Officer, James M. Loree, commented, "Our strong first quarter was highlighted by the performance of our Tools & Storage franchise which delivered 8% organic growth, overcoming difficult comps and slower industrial end markets. Security continued to perform in line with expectations delivering organic growth within several of its businesses and an expanded operating margin rate. Encouragingly, order rates were solid, attrition remained at targeted levels and, importantly, the business continued to make progress with its operational performance. In Industrial, while organic revenues declined due to softness within Engineered Fastening and lower Hydraulics volumes, the business generated an improved operating margin rate by diligently managing costs.

As 2016 progresses, we expect that measurable benefits from SFS2.0, our enhanced operating system, will materialize. Over time, we expect SFS2.0 will catalyze outsized organic growth and margin expansion and, complemented by acquisitions, will enable achievement of our long-term financial objectives and create exceptional shareholder value."

2016 Outlook

Donald Allan Jr., Senior Vice President and CFO, commented, "We are raising the range of our 2016 EPS outlook to $6.20 - $6.40 from $6.00 - $6.20 and 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, leading us to revise our organic growth outlook for the year from approximately 3% to 3 to 4%, and an estimated $40 million of lower than expected foreign currency headwinds for the year, which, in the aggregate, are expected to more than offset slightly higher than planned expenses relating to a major Tools & Storage product launch in the back half of 2016.  Maintaining our focus on operational excellence, and making smart investments to support organic growth while proactively mitigating significant and volatile currency headwinds position us to deliver on our updated 2016 financial commitments. We are also committed to our long-term capital allocation plan of returning approximately 50% of free cash flow to shareholders through dividends and opportunistic share repurchases and deploying the balance towards acquisitions."