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SWK: How Did Tools and Storage Sales Affect 1Q16 Results?

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Tools and storage business clocks impressive organic growth

Stanley Black & Decker’s (SWK) tools and storage business, its largest unit, contributed to 63.9% of total sales in the first quarter of 2016. The 1Q16 earnings release demonstrates how an improved performance in the tools and storage space could overshadow ordinary results in other segments on account of its mammoth size. The tools and storage business grew an impressive 8% against an economic backdrop of anemic global GDP growth. Overall sales grew 4% to $1.7 billion after absorbing lower-than-expected currency headwinds of 4%. As 47% of tools and storage sales are derived outside the United States, the business dictates the impact of currency headwinds on the entire company.

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Growth in power tools and hand tools

The power tools business makes up 70% of the business segment. Based on the type of consumers and product lines, power tools can be further classified into professional, consumer, and accessories. Each of these units grew by an even 10% organically. The hand tools and storage business, which forms the remaining 30% of the tools and storage segment, grew 5% organically. This was largely led by construction hand tools, which grew by 10%.

Margins drop on currency challenges

Segment profits in the tools and storage business were more modest at $262 million, a year-over-year growth of 2%. Currency headwinds on the top line more than offset by commodity deflation on the cost side and productivity improvements in operations. Therefore, segment profit margins narrowed slightly, from 15.7% a year ago to 15.3%.

Investors interested in trading in the industrial space could look into the Guggenheim S&P 500 Equal Weight Industrials ETF (RGI), and those interested in trading in dividend-based ETFs could consider the ProShares S&P 500 Dividend Aristocrats ETF (NOBL). Major holdings in NOBL are Nucor (NUE) and Illinois Tool Works (ITW), with respective weights of 2.5% and 2.3%.

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