Techtronic Shuts Down After COVID Boom (TTNDF)
The 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 easing of the pandemic.
Almost everybody suffered during the global pandemic, including not only people who have stayed closer to home to avoid infection, but also airlines, hotels, restaurants and other service providers whose business relies on the movement of people. A notable exception was the do-it-yourself (DIY) industry, which actually exploded on the demand of housebound people who bought items like power tools and kitchen appliances to kill some time during the home confinement.
But what goes up usually comes up, and that reality shows up in the latest financial statements from DIY specialists around the world. The latest example of this trend is the Hong Kong-based power tool maker Techtronic Industries Co.Ltd. (0669.HK; TTNDF, OTCPK:TTNDY), whose latest financial results show that its growth slowed considerably in the first half of the year.
Somewhat counterintuitively, shares of Techtronic actually rose 11% the day after its earnings release. But it was likely a relief rally, as stocks hit a two-year low in June. In fact, the stock hit an all-time high a year ago when the company was seen as one of the few big winners from the pandemic. Since then, it has lost about half of its value.
That said, let’s dig deeper into Techtronic’s latest numbers that show a company suffering a bit of a post-pandemic hangover.
Techtronic’s revenue rose 10% year-on-year to $7 billion in the first six months of this year, which would normally sound pretty healthy for this kind of old-school traditional manufacturer, whose brands include Milwaukee and Ryobi power tools. But that rate was actually much slower than in the first half of last year, when revenue soared 52%.
It’s a similar story throughout the report, with earnings growth slowing to 10% to $578 million from 58% growth in the first half of 2021. A bright spot has been continued improvement in margins. business despite the slowdown. It said its gross margin climbed to 39.1% in the first half of the year from 38.6% a year ago, marking the 14e consecutive period of this growth.
Techtronic’s numbers look quite similar and even slightly better than the US home improvement giant’s latest data. Home deposit (HD), which posted anemic 3.8% revenue growth in its last fiscal quarter through April, and profit growth of just 2.4%. Home Depot’s weaker performance is due to its sole focus on North America, where people are emerging from pandemic hibernation with a vengeance after nearly two years largely at home.
By comparison, Techtronic is a little more geographically diverse, although North America is its largest market, accounting for three-quarters of sales. It said its North America sales in the first half were up just 10% year-on-year, while its sales in Australia and Asia – accounting for about 8% of the total – were up 23%. European sales were average, up 14% year-on-year in the first half.
Underperforming after the pandemic
While its core power tool sales have seen growth, one area that hasn’t fared so well is the company’s floor care and cleaning business which previously had a strong focus on cleaning. hygiene during the pandemic. This 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 dramatic change underway, Techtronic is wisely entering a sort of corrective mode, led by attempts to rein in spending and reduce inventory. The company had done the exact opposite before, building up its inventory a year ago to ensure it could meet booming demand fueled by the pandemic.
Such moves seem prudent in the current climate and are likely the reason why Techtronic is currently trading at a higher price than its peers. Even after its shares sold off massively over the past year, the company’s price-to-earnings (P/E) ratio is still 21x – a pretty high number for this kind of mature maker. Global power tool giant Stanley Black & Decker (SWK) is trading at 17 times less, while local peers Johnson Electric (1079.HK; OTCPK:JELCF, OTCPK:JEHLY) is trading at just 7.5 times. Home Depot is trading at 20x, which is strong but still lower than Techtronic.
Regarding expenses, Techtronic noted that its capital expenditures for the first half were $229 million, down 6.4% year-over-year. “We have adjusted investment plans in our DIY/consumer businesses to reflect current market challenges,” the report said.
At the same time, the company said it had reduced inventory to 115 days of finished goods, down about three days since the start of the last reporting period. He added that he would continue to reduce inventory for the rest of the year. “We have taken aggressive short-term action to reduce overhead and inventory levels, while continuing to develop new products for the future,” the company said.
These reductions are in stark contrast to the situation just a year ago, when Techtronic was building up inventory to meet strong demand. In the first half of last year, it increased its inventory by 34 days to 136 days worth of goods at the end of last June.
Ultimately, Techtronic is working as hard as the power tools it makes to ensure it doesn’t overwhelm itself as the pandemic mini-boom winds down. It is not in danger of a cash crisis anytime soon, with about $1.3 billion in its coffers at the end of June. And its stock could even offer upside potential as it returns to a more stable, albeit slower, growth trajectory.
Editor’s note: The summary bullet points for this article were chosen by the Seeking Alpha editors.