Power tool king Techtronic meets ‘Damocles Sword’ in U.S. tariffs

The Milwaukee power tool maker’s stock came under pressure after U.S. President Donald Trump slapped additional 10% tariffs on Chinese imports

Key Takeaways:  

• Techtronic estimates that new tariffs imposed by the U.S. on Chinese imports will have an ‘immaterial’ impact on its results this year
• The power tool maker has diversified its manufacturing outside China to ease the risk of too much reliance on one country

By Lau Chi Hang

Ancient Greek history tells the story of Damocles, a minister of Syracuse who wanted to be the city’s lord. But on receiving his wish one day, Damocles quickly discovered a glittering gold sword hanging above the throne, which he later learned was a reminder from the city’s lord, Dionysius, that crisis is never far from the kingship. The story later came to symbolize the ever-present dangers that lurk behind power or comfort.

For power tool giant Techtronic Industries Co. Ltd. (0669.HK), the story has new significance lately, as it faces the prospect of new tariffs imposed earlier this month by the U.S., its largest market. Those tariffs come courtesy of Donald Trump, who took very little time after taking office before imposing a new 10% tax on Chinese goods.

Trump also imposed even higher 25% tariffs on Canada and Mexico, but then temporarily deferred them for one month. China was not so lucky, and its new tariffs took effect shortly after their announcement. The tariffs will inevitably affect a host of companies that manufacture in China and count the U.S. as a major market. The only question is how deep this modern-day Sword of Damocles will cut.

Investors weren’t waiting to find out, pressuring shares of the company that also sells outdoor gardening tools and floor care and cleaning products in addition to its core power tools. On Feb. 3, the first trading day after U.S. tariffs kicked in, Techtronic’s shares tumbled nearly 5%, dipping below the symbolic HK$100 mark to close at HK$99.65.

Analyst support

Techtronic responded by issuing an announcement telling investors why they needn’t worry too much, which we’ll detail shortly. The company also turned to the analyst community for support, which it kindly provided in a series of reports.

JPMorgan said that while the U.S. market contributed 75% of Techtronic’s revenue in the first half of last year, the company’s diversified supply chain and its ability to quickly adjust its production layout would cushion the blow of new tariffs. JPMorgan added the share selloff offered a buying opportunity. It forecast the company’s profit rose 18% year-on-year in the second half of last year and gave it an “overweight” rating with a target price of HK$135.

Citi also said it believes Techtronic can partly offset the impact of tariffs by making adjustments to its prices and supply chain. It gave the company a similar “buy” rating, with a slightly higher target price of HK$140.

Such votes of confidence helped to stabilize Techtronic’s shares, which rose back above the HK$100 mark. The company’s own announcement also emphasized that the impact of the tariffs would be “immaterial” this year.

Diversified manufacturing, sales

Techtronic used its official announcement to showcase several strategies it has devised to deal with this type of situation. The company emphasized the decentralized nature of its current manufacturing base: “Over the past eight years, we have significantly diversified our global manufacturing footprint, positioning the company to adapt confidently to the potential new tariffs announced by the Trump administration,” it said.

Techtronic noted it is also working to diversify the markets it sells to, aiming to lessen its dependence on the U.S. “The company’s strategic foresight has reduced reliance on single-market dependencies, empowering the company to confidently address a range of trade scenarios,” it said.

In terms of products, Techtronic underscored its devotion to innovation and operational excellence. “By leveraging our state-of-the-art manufacturing operations in the U.S., and developing user-driven, innovative products, the company believes it is the best positioned player in the industry to continue delivering value to its customers and sustain strong performance in today’s evolving trade environment,” it said.

Profit rally

Techtronic’s profit dipped in 2023, falling to $976 million for the year, as sales tapered off following a pandemic-era boom when people confined to their homes focused on home improvements. The business began to rebound in 2024, with sales up 6.3% to $7.3 billion in the first half of the year, and net profit up 15.7% to $550 million.

Meanwhile, the company’s gross margin for the six-month period remained stable at close to 40%, while free cash flow rose from $300 million to $508 million. That allowed the company to sharply narrow its debt ratio from 25.7% to 9.2%.

While sales of its flagship Milwaukee brand grew 11.2% in the first half of last year, it said its lesser-known Ryobi brand also outperformed the market. The company’s overall sales grew 5.6% year-on-year in North America, 7.9% in Europe, and 13% in Australia and Asia.

Techtronic’s current trailing price-to-earnings (P/E) ratio stands at about 23 times, making it a relative laggard compared to the 28 times for Home Depot (HD.US) and 44 times for Stanley Black & Decker (SWK.US).

While Techtronic insists the new tariffs will have little or no effect on this year’s profit, Trump’s unpredictable nature means more changes could come at any time. If relations with China deteriorate further, the tariffs may rise again. Such uncertainty could bode poorly for Techtronic’s stock, since long-term investors typically look for stable returns and thus may have reservations about the company.

Trump’s erratic nature could also ultimately lead to tariffs on some of the countries where Techtronic has set up new manufacturing bases. Thus, it’s probably far too early to say whether Techtronic is really out of the woods and the impact of Trump’s new tariffs will be immaterial. For this company, the potential for new tariffs, like a Sword of Damocles, is likely to hang over its business for at least the next four years.

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