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Snap-On Hurt by Soft Sales Trend, Growth Plans on Track

Zacks Equity Research

Snap-On Incorporated SNA has been witnessing soft sales trend that continued for the fourth straight time in first-quarter 2019. Moreover, sales dropped 1.5% in the first quarter due to adverse impacts of foreign currency translations, partly offset by organic sales growth.

Decline in sales across the Commercial & Industrial Group, and Repair Systems & Information Group segments also hurt the company’s top-line performance. Lower sales at the Asia-Pacific operations negatively impacted the Commercial & Industrial Group division. Sales at Repair Systems & Information Group were negatively impacted by decline in organic sales, mainly due to lower sales of undercar equipment.

This apart, the company is exposed to foreign currency headwinds. This Zacks Rank #4 (Sell) company’s top line in first-quarter 2019 included negative impacts of about $26.1 million from foreign currency movement. Further, unfavorable currency hurt operating income by nearly $5.7 million. In fact, currency had an adverse impact of $13.8 million, $6.2 million and $7.6 million at the company’s Commercial & Industrial Group, Tools Group and Repair Systems & Information Group segments, respectively, in the reported quarter. Going ahead, management anticipates currency translations to continue denting results in the second quarter.

We note that although shares of this company have gained 12.5% in the past six months, it has underperformed the industry’s growth of 15.5%.

Efforts to Counter Hurdles

Snap-On is benefiting from a robust business model and focus on value-creation processes.  The company’s growth strategy focuses on three critical areas — enhancing the franchise network, improving relationship with repair shop owners and managers, and expanding critical industries in emerging markets.

Further, Snap-on is dedicated toward various strategic principles and processes aimed at creating value in areas like Rapid Continuous Improvement (RCI). The company’s RCI program, designed to enhance organizational effectiveness and minimize costs, has been driving margins and profits. Moreover, management intends to boost customer services along with enhancing manufacturing and supply-chain capabilities through the RCI initiatives and further investments. Savings from RCI initiatives mainly drove gross margin in the first quarter. The company anticipates making progress on these growth strategies in 2019, which should drive its bottom line.

Additionally, the company boasts a healthy balance sheet that offers it financial flexibility to enhance shareholder returns and drive future development through value-added investments aimed at accelerating growth. Further, its commitment toward enhancing shareholder value is evident from its constant dividend payment and share repurchase programs. At the end of first-quarter 2019, Snap-on had cash and cash equivalents of $156.2 million. In the first quarter, it distributed cash dividends of $52.8 million along with REIT repurchases of 295,000 shares for $47.4 million. At the end of the first quarter, the company had about $476.9 million remaining to be repurchased under its existing authorization.

All said, management expects these positives to continue throughout the year. The company anticipates making progress on defined strategies for growth in 2019, which should boost its bottom line. With such well-chalked plans, we believe the stock is well-positioned to regain its lost sheen in the future.

Check Out These Consumer Discretionary Stocks

Columbia Sportswear COLM has a long-term earnings growth rate of 8.9% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Crocs CROX has a long-term earnings growth rate of 15% in the last reported quarter. It currently carries a Zacks Rank #1.

Under Armour UAA has a long-term earnings growth rate of 27.1% and a Zacks Rank #2 (Buy) at present.

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