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Snap-On (SNA) Beats on Q1 Earnings, Organic Growth Strong

Zacks

Snap-on Incorporated SNA maintained its impressive earnings beat streak, posting first-quarter 2017 net earnings of $2.39 per share. Earnings surpassed the Zacks Consensus Estimate of $2.34 by 2.1%. The bottom line also reflected an increase of 10.6% from the year-ago figure of $2.16.

The bottom line benefited from Snap-on’s robust business model and focus on value-creation processes. Also, organic top-line growth proved conducive to the earnings performance.

Inside the Headlines


Net sales in the quarter increased 6.3% year over year to $887.1 million and also topped the Zacks Consensus Estimate of $876.9 million. Excluding acquisition-related expenses and unfavorable foreign currency translation effect, organic sales rose 4.1% year over year.

Robust sales growth at Snap-on Repair Systems & Information drove the top line, along with decent performance from the other two segments. However, unfavorable foreign currency translation restricted revenue growth to some extent.

Segment wise, Commercial & Industrial Group sales rose 4.1% to $298.7 million. Organic sales were up 3%, primarily owing to strong performance in the European-based hand tools business. Also, higher sales to customers in critical industries including military drove the top line at this segment. Unfavorable foreign currency translation had a $4.7-million impact on sales, thereby offsetting organic growth to a large extent.

Snap-on’s Tools Group revenues continued to show strength and inched up 1.7% year over year to $409.4 million. In addition, organic sales at the segment recorded an improvement of 2.5%.

Repair Systems & Information revenues climbed 14.3% year over year to $318.8 million. Meanwhile, organic sales at the segment improved 7.8%. Higher sales of diagnostics and repair information products to independent repair shop owners and managers, OEM dealerships and undercar equipments, drove robust organic growth at the segment.

On the other hand, the Financial Services business reported revenues of $76.8 million compared with $47 million recorded in the year-ago quarter.

Operating earnings before financial services in the quarter came in at $169.5 million, up 9.1% from $155.4 million in the prior-year quarter.

Snap-On Incorporated Price, Consensus and EPS Surprise

Liquidity

At the end of the reported quarter, Snap-on’s cash and cash equivalents totaled $123 million compared with $77.6 million at the end of 2016. The company’s long-term debt came in at $755.4 million at quarter end, up from $708.8 million at the end of 2015.

Other Activities

In fourth-quarter 2016, Snap-on purchased Sweden-based firm – Car-O-Liner – to reinforce the Repair Systems & Information Group’s position, and fortify its hold in the auto and heavy duty markets. The company expects this acquisition and favorable industry trends to strengthen its relationship with repair shop owners and managers.

Snap-on also acquired torque wrench marker – Sturtevant Richmont — which is engaged in the designing, manufacturing and distributing of mechanical and electronic torque wrenches. Snap-on believes that this strategic buyout will improve its critical mechanical performance by addressing critical torque requirements.

To Conclude

Snap-on started 2017 on an impressive note, following a year with four successive earnings beats. The company’s overarching business model, which aims to maximize value-creation by focusing on areas like safety, quality of service, customer satisfaction and innovation, has emerged as a tried and tested growth driver. Snap-on is committed to its rapid continuous improvement (RCI) program, designed to enhance organizational effectiveness and minimize costs.

Moving ahead in 2017, Snap-on revealed plans to enhance the franchise network, expand ties with repair shop owners and managers, and foray into critical industries to strengthen hold in emerging markets. Solid prospects across business segments, a diversified portfolio and impressive traction of the recently launched products continue to add to the strength of this company.

However, in recent times, oil market sluggishness and currency fluctuations have been eroding the profitability of this Zacks Rank #4 (Sell) company. The ongoing softness in industrial markets are impacting client spending, which, in turn, is adding to the company’s woes, primarily affecting its industrial business. These factors remain substantial risks for Snap-On in times to come.

Stocks to Consider

Better-ranked stocks in the broader sector include EnerSys ENS, Middleby Corp. MIDD and SPX FLOW, Inc. FLOW. All three stocks hold a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

EnerSys has an impressive earnings history, with a positive average surprise of over 4.4% for the four trailing quarters, driven by four consecutive beats.

Middleby has a striking earnings surprise history, with an average surprise of 14.1% for the trailing four quarters, beating estimates each time.

SPX FLOW has an average positive surprise of 75.3%, having beaten estimates thrice over the trailing four quarters.

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