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Snap-On (SNA) Up 5.2% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

It has been about a month since the last earnings report for Snap-On (SNA). Shares have added about 5.2% in that time frame, outperforming 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 catalysts.

Snap-on’s Q3 Earnings Surpass Estimates, Sales Miss

Snap-on reported earnings of $2.96 per share in third-quarter 2019, surpassing the Zacks Consensus Estimate of $2.94. The figure also improved 2.8% from the year-ago quarter’s adjusted earnings of $2.88.

Earnings benefited from Snap-on’s robust business model and focus on value-creation processes. Improved sales in the U.S. operations as well as overall organic sales growth boosted the company’s quarterly performance.

Q3 in Detail

Net sales inched up 0.4% to $901.8 million but lagged the Zacks Consensus Estimate of $913 million. The year-over-year increase can be attributed to 1.4% organic sales growth and $2.9-million contribution from acquisitions. However, growth was offset by $11.7 million of adverse impacts of foreign currency translations.

Sales at Commercial & Industrial Group improved 1.5% to $335.3 million, backed by organic sales growth of 2.9% and contribution of $1.1 million from acquisition-related sales. Robust sales at the division’s specialty tools and European hand tools businesses aided organic sales. Notably, higher sales to customers in critical industries also contributed to the same. The upside was somewhat offset by $5.5 million of adverse impacts of foreign currency.

The Tools Group segment’s sales dipped 1.2% year over year to $385.2 million, driven by a 0.3% decline in organic sales and $3.3-million impact of currency headwinds. Organic sales were hurt by lower sales in the segment’s international business, partly negated by sales growth in the United States.

Sales at Repair Systems & Information Group rose 2.6% year over year to $322.7 million. Moreover, organic sales at the segment improved 3.2%, owing to increased sales to OEM dealerships as well as rise in sales of diagnostics and repair information products. Also, sales of $1.8 million from buyouts aided growth. Nevertheless, unfavorable currency rates hurt top-line growth to the tune of $3.6 million.

Meanwhile, the Financial Services business reported revenues of $84.1 million, up from $82 million realized in the year-ago quarter.

Further, the company’s operating earnings before financial services totaled $167.7 million, down 3.1% from $173.1 million in the prior-year quarter.

Consolidated operating earnings of $228.7 million were down 1.6% from the prior-year quarter. Additionally, operating earnings margin contracted 50 basis points to 23.2%.

Financials

At the end of third-quarter 2019, Snap-on’s cash and cash equivalents totaled $167.5 million compared with $140.9 million as of Dec 29, 2018. The company’s long-term debt was $947.5 million compared with $946 million recorded at the end of 2018.

Looking Ahead

Despite ongoing difficulties related to challenging geographies and adverse currency, management remains optimistic about the overall macro-economic condition of vehicle repair and critical industries that it serves.

Through the rest of 2019, the company expects to continue delivering coherent growth and leverage capabilities demonstrated in the automotive repair arena. It also expects to develop and expand its professional customer base in the automotive repair business as well as in adjacent industries, additional geographies and other areas like critical industries. Backed by these initiatives, the company expects capital expenditure of $95-$105 million for 2019, with about $77.8 million incurred in the first nine months of 2019.

Further, its effective income tax rate for 2019 is projected to be on par with the tax rate of 24% in 2018.

How Have Estimates Been Moving Since Then?

Estimates revision followed a downward path over the past two months.

VGM Scores

Currently, Snap-On has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. 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.

Outlook

Snap-On has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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