A month has gone by since the last earnings report for Snap-On (SNA). Shares have added about 2.1% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Snap-On due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Snap-on Q3 Earnings & Sales Beat Estimates
Snap-on posted solid third-quarter 2020 results wherein both top and bottom lines increased year over year. Despite the tough COVID-19 environment, the company retained its positive sales momentum during the quarter. Also, gains from the Snap-on Value Creation model contributed to quarterly growth.
Q3 in Details
Snap-on’s adjusted earnings of $3.28 per share in third-quarter 2020 surpassed the Zacks Consensus Estimate of $2.16. Moreover, the figure was up 11% from the year-ago quarter’s adjusted earnings of $2.96 per share.
Net sales grew 4.4% to $941.6 million and beat the Zacks Consensus Estimate of $804 million. The uptick can be attributed to organic sales growth of 3.8%, a $4.2-million positive impact from foreign currency translations and $1 million in contributions from acquisitions.
Adjusted gross profit came in at $469.5 million, up 4.8% year over year, while gross margin advanced 20 bps to 49.9% in the reported quarter.
Further, the company’s adjusted operating earnings before financial services totaled $185.7 million, up 10.7% year over year. Additionally, adjusted operating earnings margin expanded 900 bps to 19.7% in the quarter under review.
Sales in Commercial & Industrial Group fell 8% from the prior-year quarter to $308.4 million due to an organic sales decline of 8.6%, offset by a positive impact of $2.2 million from foreign currency. Sales decline in critical industries and in the Asia-Pacific region hurt the segment to some extent.
The Tools Group segment’s sales rose 16.8% year over year to $449.8 million, driven by organic sales growth of 16.2% and a $1.8-million positive impact of foreign currency. Solid sales performance in the United States and the international franchise operations aided organic sales.
Sales in Repair Systems & Information Group fell 1.6% year over year to $317.5 million. Moreover, organic sales in the segment dropped 2.2% from the year-ago quarter due to lower sales to OEM dealerships, somewhat offset by robust sales in diagnostics and repair information products to independent repair shop owners and managers. However, sales of $1 million from buyouts and $0.8 million related to favorable currency aided growth.
Nevertheless, the Financial Services business reported revenues of $65.6 million, down from $85.8 million in the year-ago quarter.
During the quarter, Snap-on’s cash and cash equivalents totaled $787.5 million compared with $184.5 million as of Dec 28, 2019.
As the world continues to adjust with the changing economic landscape, Snap-on has been witnessing improving trends in the third quarter on a sequential basis. The company remains focused on leveraging its capabilities in the automotive repair space and expanding the base in automotive repair and across regions, particularly critical industries.
Driven by such well-chalked initiatives, management foresees capital expenditure to be $75-$85 million in 2020. Out of this, $39.1 million have already been incurred in the first nine months of 2020. Apart from these, it is on track with the Rapid Continuous Improvement (RCI) plan and cost-cutting actions to combat the ongoing crisis.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 14.29% due to these changes.
At this time, Snap-On has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile 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.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Snap-On has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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