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Why Is Snap-On (SNA) Up 2.1% Since the Last Earnings Report?

It has been about a month since the last earnings report for Snap-On Incorporated SNA. Shares have added about 2.1% in that time frame, underperforming the market.

Will the recent positive trend continue leading up to the stock’s next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Snap-on Q4 Earnings & Revenues Beat, Increase Y/Y

Snap-on maintained its earnings beat streak, posting fourth-quarter 2016 net earnings of $2.47 per share. Earnings surpassed the Zacks Consensus Estimate of $2.41 by 2.5%. The bottom line also reflected an increase of 11.3% from the year-ago figure of $2.22.

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.

For full-year 2016, the company’s net earnings per share came in at $9.20, up 13.6% year over year.

Inside the Headlines

Net sales in the quarter increased 4.5% year over year to $889.8 million and topped the Zacks Consensus Estimate of $884 million. Excluding acquisition-related expenses and unfavorable foreign currency translation effect, organic sales rose 3.6% year over year.

Robust sales growth at Snap-on 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.

For full-year 2016, the company’s net sales totaled $3,430.4 million, up 2.3% from the 2015 level.

Segment-wise, Commercial & Industrial Group sales inched up 1.6% to $286.3 million. Organic sales were up 2.4% 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 $6.2 million-impact on sales, thereby offsetting organic growth to a large extent.

Snap-on’s Tools Group revenues continued to show strength and grew 1.5% year over year to $417.5 million. Growth at this segment was driven by solid U.S. and international franchise operations. Also, organic sales at the segment recorded an improvement of 3%.

Repair Systems & Information revenues rose 14% year over year to $319.8 million. Meanwhile, organic sales at the segment improved 8.9%. 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 $74.2 million, compared with $63.1 million in the year-ago quarter.

Operating earnings before financial services in the quarter came in at $51.6 million, up 14.7% from $45.0 million in the prior-year quarter.

Liquidity

At the year end, Snap-on’s cash and cash equivalents totaled $77.6 million, compared with $92.8 million at the end of 2015. The company’s long-term debt of $708.8 million represented a significant fall from $861.7 million at the end of 2015.

Q4 Activities

During the quarter, Snap-on purchased Sweden-based firm – Car-O-Liner – to reinforce its Repair Systems & Information Group 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.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There have been two downward revisions for the current quarter.

Snap-On Incorporated Price and Consensus

 

Snap-On Incorporated Price and Consensus | Snap-On Incorporated Quote

VGM Scores

At this time, the Snap-On stock has an average score of 'C' on both growth and momentum front. Charting a somewhat similar path, the stock was allocated a grade of 'B' on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'B'. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks' style scores indicates that the stock is more suitable for value investors than growth and momentum investors.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of these revisions indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.


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