Stanley Black & Decker Reports 4Q 2015 Results

OREANDA-NEWS. Stanley Black & Decker (NYSE: SWK) today announced full year and fourth quarter 2015 financial results.

• Full Year Revenues Totaled $11.2 Billion Reflecting 6% Organic Growth Offset By 7% Currency Impact
• Full Year Operating Margin Rate Expanded 90 Basis Points To 14.2%
• Full Year Diluted GAAP EPS Was $5.92, Up 10% From 2014 As Strong Operational Performance More Than Offset $220 Million Of Currency Headwinds
• 2015 Free Cash Flow Of $871 Million; Working Capital Turns Maintained At 9.2
• 4Q'15 Revenues Totaled $2.8 Billion With 1% Organic Growth
• 4Q'15 Operating Margin Rate Expanded 100 Basis Points To 14.2%
• 4Q'15 Diluted GAAP EPS Was $1.78, Up 30% From 4Q'14 As Solid Operational Performance Combined With Lower Tax, Share Count And Restructuring More Than Offset $50 Million Of Currency Headwinds
• Expect 2016 Full Year Diluted EPS Of $6.00 To $6.20 On A GAAP Basis And Free Cash Flow Conversion Of Approximately 100%

4Q'15 Key Points:

• Net sales for the quarter were $2.8 billion, down 5% versus prior year, as price (+1%) was more than offset by currency (-6%).
        
• Gross margin rate for the quarter was 35.6%, up from prior year 35.2% as price, productivity, cost actions and commodity deflation more than offset unfavorable currency.
       
• SG&A expenses were 21.5% of sales compared to 22.1% in 4Q'14 reflecting tight cost management.
        
• Operating margin rate was 14.2% compared to 13.2% in 4Q'14, as actions to improve profitability more than offset $50 million of unfavorable currency.
       
• Restructuring charges for the quarter were $3.7 million compared to $24.4 million in 4Q'14.
       
• Tax rate was 12.7% compared to the 4Q'14 rate of 17.6% as a result of adjustments to tax positions relating to undistributed foreign earnings and the impact of certain net operating losses that have become realizable.
         
• Average diluted shares outstanding for the quarter were 150.0 million versus 160.0 million a year ago, reflecting the impact of share actions.
       
• Working capital turns for the quarter were 9.2 consistent with 4Q'14 as lower organic growth in the quarter constrained the potential for year over year working capital turns improvement.

Stanley Black & Decker's Chairman and CEO, John F. Lundgren, commented, "We are pleased with our full year financial results, having achieved 6% organic growth and 10% earnings per share growth amidst a very challenging operating environment.  By maintaining our focus on innovation and controlling key operational levers such as price, cost and product mix, we delivered noteworthy operating leverage despite significant foreign currency headwinds.  We concluded 2015 with a solid fourth quarter, expanding margins, generating significant free cash flow and posting positive organic growth in the face of ongoing weakness in some key markets.

"As we look forward, we believe we are well positioned to manage through a continued difficult environment by leveraging our world-class franchises and brands to deliver solid organic growth and strong free cash flow while maintaining our disciplined and shareholder friendly approach to capital allocation." 

• Tools & Storage net sales decreased 3% versus 4Q'14 as volume (+2%) and price (+1%) were more than offset by unfavorable currency (-6%). All regions posted organic growth with North America +3%, Europe +6%, and the emerging markets +1%. The U.S. construction tool market remained healthy and new products and brand extensions generated share gains in North America despite downward pressure in the industrial channels and Canada. Solid commercial momentum continued in Europe as share gains from new products and an expanded retail footprint produced another quarter of above-market organic growth. Organic growth within the emerging markets remained positive reflecting the favorable impact of pricing and the continued success of our mid-price-point product releases amidst a series of challenging end markets, including Brazil, Russia and China. Overall Tools & Storage segment profit rate was 16.6%, up from the 4Q'14 rate of 16.0%, as volume leverage, price, productivity, cost management and lower commodity prices more than offset currency pressures.
         
• Security net sales decreased 9% versus 4Q'14 as price (+1%) was more than offset by lower volumes (-5%) and currency (-5%). Higher installation revenues in a number of countries and a stable recurring revenue portfolio resulted in Europe posting organic growth of 3%, Europe's fifth consecutive quarter of flat or positive organic growth. Order rates in Europe were again strong, up double-digits, while recurring revenue attrition remained solidly within the target range of 10-12%. North America's organic revenues declined 6% due primarily to lower volumes within the commercial electronic security business as 4Q'14 benefited from a large retail installation. Similar to Europe, orders within the North American commercial electronic security business were strong. Emerging markets organic revenues declined due to the ongoing relatively weak market conditions in China. Overall Security segment profit rate was 12.8%, up 100 basis points versus prior year, primarily due to improved operating performance within Europe. The segment profit rate improved 90 basis points sequentially as a result of continued margin expansion within Europe and improved operating performance in the North America business.
         
• Industrial net sales decreased 7% versus 4Q'14 as price (+1%) was more than offset by lower volumes (-2%) and currency (-6%). Engineered Fastening's organic revenues declined 3% as strong global automotive revenues were more than offset by lower electronics and industrial volumes. Infrastructure organic revenues were up 2% as increased Oil & Gas volumes from higher North American on-shore pipeline project activity more than offset lower Hydraulic Tools volumes due to a difficult scrap steel market. Overall Industrial segment profit rate was 17.9%, up 210 basis points from the 4Q'14 rate, as productivity gains and cost control, particularly within Engineered Fastening, more than offset the impacts of currency and lower Hydraulic Tools volumes.

President and Chief Operating Officer, James M. Loree, commented, "Our Tools & Storage team delivered 3% organic growth for the quarter, buoyed by continued strength within North American and European retail channels, despite tough comparables and significant headwinds from a weak industrial end market and within the emerging markets.  With respect to the latter, the success of our mid-price point products combined with strong pricing actions allowed us to outperform underlying market growth.  The 8% organic growth in Tools & Storage for the year is a testament to the strength and momentum of this world class franchise.  Also noteworthy was Engineered Fastening's ability to drive outsized organic growth within automotive and generate margin expansion in the quarter despite overall lower volumes.  Our Security business demonstrated another quarter of forward progress.  Europe delivered positive organic growth, year-over-year margin improvement with margins approaching 10%, strong order rates and attrition at targeted levels for the quarter.  Our focus within Security North America remains squarely on improving field productivity where we took another step forward in the quarter evidenced by sequential margin improvement."

2016 Outlook

Donald Allan Jr., Senior Vice President and CFO, commented, "2015 was a strong year in terms of operational execution and 2016 will require a similar effort as we expect continued challenging macroeconomic conditions.  Maintaining our focus on operational excellence, and making smart investments to support organic growth while proactively mitigating significant currency headwinds position us to deliver approximately 3% organic growth and EPS of $6.00 - $6.20 (up approximately 3% at the mid-point) in 2016."

The following summarizes key 2016 planning assumptions:

• Organic growth of approximately 3% (approximately +$0.45 to $0.50 EPS)
• Commodity deflation, cost actions and productivity (approximately +$0.45 to $0.50 EPS) 
• Lower average share count, including approximately $300 million of share repurchases in 2016 (approximately +$0.13 EPS)
• Foreign exchange headwinds of approximately $170 - $190 million (approximately - $0.85 to $0.95 EPS)
• Restructuring charges and the tax rate will be relatively consistent with 2015 levels
• Free cash flow conversion approximating 100%

Mr. Allan added, "Our 2016 outlook maintains the key elements from our three year financial outlook presented in May 2015, namely above market organic growth, operational efficiency, EPS expansion and improved cash flow return on investment, while incorporating today's global growth and foreign exchange outlook.  In addition, we remain 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."