Techtronic tools up 18-year streak of gross margin gains

The power tool maker’s first-half profit beat market expectations, sending its stock soaring as its market capitalization passed $33 billion

Key Takeaways:

• Techtronic reported its gross profit margin rose to a historic high of 42.9% in the first half of the year, extending an 18-year streak of gains
• The power tool maker’s free cash flow surged 61% to $753 million during the six-month period

By Cheng Shui Tong

Leading global power tool maker Techtronic Industries Co. Ltd. (0669.HK) has powered its way to another strong financial report, banking on profitability of its Milwaukee consumer brand, improvements to its global manufacturing business, and continued benefits from tariff mitigation measures.

The company’s financial results for the first half of 2026, announced last week, show its revenue grew by a modest 5.9% to $8.3 billion during the six-month period. Its net profit rose by a stronger 17.5% to $738 million, powered by a 258-basis-point improvement in its gross margin to 42.9%.

Techtronic’s financial position also remained strong, as it generated free cash flow of $753 million during the period, up 61% from the same period last year. That helped to boost its cash on hand to $1.89 billion by the end of June, up 13.1% from a year earlier.

The humming business prompted the company to raise its business targets. After recording an earnings before interest and taxes (EBIT) margin of 9.9% for the first half of the year, management said it is confident of reaching an internal target of 10% in 2027, with further improvements expected in 2028 and beyond. The company also raised its 2026 free cash flow target from $1 billion to over $1.3 billion.

Stock at four-year high

Techtronic’s stock jumped 8% the day after the announcement to HK$143.80, a four-and-a-half-year high, prompting upgrades by some investment banks. Nomura was one of the most bullish, raising its target price from HK$163 to HK$173, reflecting the company’s accelerating shift towards its higher-margin brands such as Milwaukee.

One of Techtronic’s most impressive metrics has been its gross margins, which have grown for each of the last 17 years from around 30% in 2009 to 41.2% last year. The 42.9% figure for the first half of 2026 makes it likely the company will keep that streak alive. Such a long run looks impressive for anyone, reflecting management’s ability to keep adapting to changing market conditions with new products and manufacturing strategies.

Techtronic’s history dates back more than 40 years to its establishment in 1985 with just $20,000 in investment from German entrepreneur Horst Julius Pudwill and Hong Kong industrialist Roy Chung. The company began with a manufacturing plant in Dongguan, not far from the Hong Kong border with Mainland China, in the early days as the Pearl River Delta was just starting to emerge as a manufacturing hub. It initially produced Craftsman-brand power drills as an original equipment manufacturer (OEM) for American retail giant Sears, earning Roy Chung the moniker “King of Power Drills.”

As the business expanded, the company was listed in Hong Kong in 1990. In search of higher margins, it soon decided to abandon its OEM model in favor of the more profitable business of developing its own brands. That led to its 2000 acquisition of Ryobi’s North American power tool business. From there it acquired the century-old American vacuum cleaner brands Royal and Dirt Devil in 2003. Its most successful acquisition came in 2005 when it bought Milwaukee, a premium U.S. professional power tool brand that took it into the high-margin industrial and professional construction markets.

Cordless product transition

Techtronic subsequently decided to abandon corded tools in favor of cordless products powered by lithium-ion batteries, kicking off a period of explosive growth. In 2019, it was included as a constituent stock of the benchmark Hang Seng Index. Its business has continued to grow ever since, as the company boosted its margins by gravitating towards higher-end products.

Over its four-decade journey to the present, Techtronic has provided a potent combination for investors with its stable profit growth and high dividend payouts. Following its latest rally, the company is now worth more than HK$260 billion ($33 billion), making it first in its class among power tool stocks.

Other highly valued Hong Kong industrial stocks include names like Kingboard Laminates (1888.HK) and semiconductor firm ASMPT (0522.HK), whose shares both embarked on major rallies this year fueled by AI associations, only to later give back much of the gains. More comparable peers include names like VTech Holdings (0303.HK) and Johnson Electric (0179.HK), whose shares have been more stagnant due to their association with traditional electronics.

AI concept stock?

Techtronic has an AI angle as well. JPMorgan previously issued a report saying the company’s products are an indispensable component in the construction supply chain for AI data centers, and its Milwaukee brand has been designated by numerous major contractors for use in construction of such centers. Despite that, investors didn’t pick up on the AI theme, buffering the company from the wild gyrations seen by many AI concept stocks lately.

While investors are generally optimistic about Techtronic’s prospects, the company still faces a degree of uncertainty. Its primary market is North America, which subjects it to changes in U.S. trade policies, and more broadly to the U.S. economy. That means factors like new home construction could affect the company’s sales.

What’s more, the stock currently trades at a relatively rich price-to-earnings (P/E) ratio of 28 after its recent rally. That could sideline some investors who might otherwise like the company, leaving them waiting for a potential pullback before buying.

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