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Snap-On (SNA) Q2 Earnings Beat Estimates, Revenues Up Y/Y

Snap-on Incorporated SNA maintained its impressive earnings beat streak, posting second-quarter 2017 net earnings of $2.60 per share. Earnings surpassed the Zacks Consensus Estimate of $2.55 by 1.6%. The bottom line also reflected an increase of 10.2% from the year-ago figure of $2.36.

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 5.6% year over year to $921.4 million, but missed the Zacks Consensus Estimate of $922 million by a whisker. Excluding acquisition-related expenses and unfavorable foreign currency translation effect, organic sales rose 2.7% year over year.

Solid sales growth at Snap-on Repair Systems & Information and Commercial & Industrial Group drove the top line. However, unfavorable foreign currency translation restricted revenue growth to some extent.

Segment wise, Commercial & Industrial Group sales rose 8.5% to $310 million. Organic sales were up 4.7% 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 $4.9-million impact on sales, thereby offsetting organic growth to an extent.

Snap-on’s Tools Group revenues edged down 0.7% year over year to $413.8 million. Organic sales at the segment recorded a minor improvement of 0.5%, but unfavorable foreign currency translation impact of $5 million more than offset the same.

Repair Systems & Information continued to display strength, as revenues climbed 14.5% year over year to $338.1 million. Meanwhile, organic sales at the segment improved 8.3%. Higher sales of diagnostics and repair information products to independent repair shop owners and managers, OEM dealerships and undercar equipments drove strong organic growth at the segment.

On the other hand, the Financial Services business reported revenues of $77.7 million compared with $69.3 million recorded in the year-ago quarter.

Operating earnings before financial services in the quarter came in at $183.7 million, up 10.4% from $166.4 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 $89 million compared with $77.6 million at the end of 2016. The company’s long-term debt came in at $755.6 million at quarter end, up from $708.8 million at the end of 2016.

Other Activities

During the reported quarter, Snap-on acquired Norbar Torque Tools, along with its U.S. and Chinese joint ventures, for roughly $72 million. Norbar is a leading European manufacturer which boasts a complete range of torque products and also enjoys a robust foothold in critical industries, like power generation, oil & gas, mining and railroad. Norbar will complement and expand Snap-on’s existing torque portfolio, and help it to cater to critical industries, particularly in powered torque products.

Earlier, 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 anticipates 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

Despite industry headwinds, Snap-on continues to perform impressively. 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 program, designed to enhance organizational effectiveness and minimize costs.

Moving ahead, Snap-on announced plans to enhance the franchise network, expand ties with repair shop owners and managers, and foray into critical industries to strengthen its hold in emerging markets. Solid prospects across business segments, accretive acquisitions 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 #3 (Hold) company. Further, persistent contraction in capital expenditure by auto dealers and intensifying used car asset quality pressure are formidable headwinds for the 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 the times to come.

Stocks to Consider

Better-ranked stocks in the broader sector include A.O. Smith Corporation AOS, Regal Beloit Corporation RBC and Eaton Corporation, PLC ETN. 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.

A.O. Smith has an impressive earnings history, with a positive average surprise of over 4.9% for the four trailing quarters, driven by consecutive beats.

Regal Beloit has an average positive surprise of 1.5%, having beaten estimates twice over the trailing four quarters.

Eaton has a striking earnings surprise history, with an average surprise of 3.3% for the trailing four quarters, beating estimates thrice.

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