Snap-On's 2Q Earnings Beat

Zacks

Snap-on Inc. (SNA) reported second quarter 2013 earnings per share of $1.50, beating the  Zacks Consensus Estimate of $1.43 by 4.9% and increasing 15.4% from the prior-year quarter’s earnings of $1.30.

Despite continued headwinds affecting the company’s business, management’s focus on enhancing van network, building on repair shop owners and managers, extending to critical industries, strategic acquisitions and expanding in emerging markets continued to favorably benefit the company.

Total Revenue

Total revenue in the quarter surged 3.6% year over year to $764.1 million. Organically, sales increased 3.1%. The company reported revenue growth in three of its four operating segments. Higher revenues in the Snap-On Tools, Repairs Systems & Information Group and Financial services were partially offset by lower revenues in the Commercial & Industrial Group. Revenues were also above the Zacks Consensus Estimate of $753 million.

Segment Results

Commercial & Industrial Group segment sales declined 6.1% year over year to $266.2 million due to lower sales to the military and soft European hand tools business, which in turn was a result of ongoing economic weakness in the region. Organic sales also declined 5.4% year over year.  

Snap-on Tools Group segment sales increased 6.5% year over year to $346.2 million, driven by sales gains in both U.S. and international franchise operations. Organic sales jumped 7.0%. 

Repair Systems & Information segment sales increased 8.3% to $246.2 million, attributable to higher sales to Original Equipment Manufacturer (:OEM) dealerships and gains in sales of diagnostics and repair information products to repair shop owners and managers. Organic sales were up 4.9% year over year. 

Financial Services reported operating earnings of $30.6 million on revenues of $44.5 million compared with operating earnings of $25.6 million on revenues of $39.9 million a year ago.

During the quarter, Snap-on acquired Challenger Lifts, Inc. in an all-cash transaction for about $38 million. The acquisition was a strategic move by Snap-On to expand its existing undercar equipment line of products.

Income and Expenses

Gross margin for the quarter was 48.8%, above 33.2% reported in the prior-year quarter. This reflects an increase of 1560 basis points, driven by continuous improvement initiatives. Operating expenses for the quarter were $255.4 million compared with $245.3 million in the prior-year quarter.

Operating margin was 19.4%, up 170 basis points from 17.6% in the prior-year quarter. Margin increase was primarily driven by Snap-on value creation processes.    

Balance Sheet

Cash and cash equivalents were $174.7 million at the end of the quarter with long-term debt of $861.4 million and shareholders’ equity of $1.90 billion, compared with $241.5 million, $970.4 million and $1.82 billion, respectively.

Outlook

Concurrent with the earnings release, Snap-On reiterated its outlook for 2013. Snap-On expects to incur capital expenditures of $70 million to $80 million in 2013. The company noted that it will continue to focus on emerging markets, expand its presence in new industries, enhance its mobile tool distribution network and expand in the vehicle repair garage market.

Snap-on currently has a Zacks Rank #3 (Hold). Stocks worth considering at the moment are Chicago Bridge & Iron (CBI), Emcor Group Inc. (EME) and Dycom Industries (DY). All three carry a Zacks Rank #1 (Strong Buy).

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