Power tool maker’s revenue grew just 10% in the first half of 2022, much slower than last year’s 52% rate, as DIY activity returned to more normal levels with the pandemic’s easing

Key Takeaways:

  • Techtronic’s growth slowed dramatically in the first half of this year as spending on home improvements dropped with the easing of the pandemic
  • Company is focused on cost control and inventory reduction as its business returns to more traditional levels following a brief boom during the pandemic

By Doug Young

Nearly everyone suffered during the global pandemic, including not only people who stayed closer to home to avoid infection, but also airlines, hotels, restaurants and other service providers whose business relies on people being out and about. One notable exception was the do-it-yourself (DIY) industry, which actually boomed on demand from housebound people who snapped up items like power tools and kitchen appliances to kill some time during home confinement.

But what goes up generally comes down, and that reality is showing up in the latest financial statements from DIY specialists across the globe. The latest showing that trend is Hong Kong-based power tool maker Techtronic Industries Co. Ltd. (0669.HK), whose latest financial results show its growth slowed dramatically in the first half of the year.

Somewhat counterintuitively, Techtronic’s shares actually rallied 11% the day after it published its results. But that was probably a relief rally, since the shares reached a two-year low back in June. In fact, the stock previously rose to an all-time high a year ago when the company was perceived as one of the few big winners from the pandemic. Since then, it has lost about half of its value.

All that said, we’ll take a deeper dive into Techtronic’s latest numbers that show a company suffering a bit from a post-pandemic hangover.

Techtronic’s revenue grew by 10% year-on-year to $7 billion in the first six months of this year, which would normally look quite healthy for this kind of old-school traditional manufacturer, whose brands include Milwaukee and Ryobi power tools. But that rate was actually far slower than the first half of last year, when revenue soared by 52%.

It’s a similar story throughout the report, with profit growth slowing to 10% at $578 million from 58% growth in the first half of 2021. One bright spot was continued improvement in the company’s margins despite the slowdown. It reported its gross margin climbed to 39.1% in the first half of the year from 38.6% in the year-ago period, marking the 14th consecutive period of such growth.

Techtronic’s numbers look quite similar and even slightly better than the latest data from U.S. home improvement giant Home Depot (HD.US), which posted anemic 3.8% revenue growth in its latest fiscal quarter through April, and just 2.4% profit growth. Home Depot’s weaker performance owes to its sole focus on North America, where people are coming out of pandemic hibernation with a vengeance after nearly two years of largely staying at home.

By comparison, Techtronic is a bit more geographically diverse, even though North America is its largest market, accounting for three-quarters of sales. It said its North America sales in the first half of the year rose just 10% year-on-year, while its sales in Australia and Asia – accounting for around 8% of the total – rose at a stronger 23%. European sales were in the middle, up 14% year-on-year during the first half.

Post-pandemic underperformer

While its core power tool sales posted growth, one area that didn’t fare so well was the company’s floor care and cleaning business that previously benefitted from extra attention to hygiene during the pandemic. That part of the business actually fell about 18% in the first half of the year to $472 million, contributing a relatively modest 7% of total revenue.

With such a dramatic shift now in progress, Techtronic is wisely going into a sort of corrective mode, led by attempts to rein in spending and reduce inventory. The company had been doing just the opposite before, building up its inventory a year ago to make sure it could meet the booming pandemic-fueled demand.

Such moves look prudent in the current climate, and are probably why Techtronic currently trades at a premium to its peers. Even after the big selloff of its shares over the last year, the company’s price-to-earnings (P/E) ratio still stands at 21 times – quite a strong figure for this kind of mature manufacturer. Global power tool giant Stanley Black & Decker (SWK.US) trades at a lower 17 times, while local peer Johnson Electric (1079.HK) trades at just 7.5 times. Home Depot trades at 20 times, which is strong but still below Techtronic. 

With regard to spending, Techtronic noted its capital expenditures for the first half totaled $229 million, down by 6.4% year-on-year. “We have adjusted the investment plans in our DIY/consumer businesses to reflect the current challenges in the market,” it said in the report.

At the same time, the company said it reduced its inventory to 115 days’ worth of finished goods, down by about three days from the start of the latest reporting period. It added it will continue to reduce inventory for the rest of the year. “We have taken aggressive short-term actions to reduce overhead and to reduce inventory levels, while continuing to develop new products for the future,” the company said.

Those reductions contrast sharply with the situation just a year ago, when Techtronic was building up inventory to meet strong demand. In the first half of last year, it boosted its inventory by a whopping 34 days to reach 136 days’ worth of goods by the end of last June.

At the end of the day, Techtronic is working as hard as the power tools it makes to ensure it doesn’t overextend itself as the pandemic mini-boom winds down. It’s not in danger of a cash crunch anytime soon, with about $1.3 billion in its coffers at the end of June. And its stock could even offer some potential upside as it returns to a steadier, albeit slower, growth track.

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