It has been about a month since the last earnings report for Snap-On (SNA). Shares have lost about 2.9% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Snap-On due for a breakout? 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's Q1 Earnings Beat, Sales Miss Estimates
Snap-on reported adjusted earnings of $3.01 per share in first-quarter 2019, which exceeded the Zacks Consensus Estimate of $2.91 and also improved 7.9% from the year-ago quarter.
On a GAAP basis, the company’s earnings of $3.16 per share increased 12.1% on a year-over-year basis. Earnings benefited from Snap-on’s robust business model and focus on value-creation processes. Increases in adjusted operating earnings and improved sales in the U.S. franchise operations further provided a boost to Snap-on’s bottom-line performance.
Q1 in Detail
Net sales decreased 1.5% to $921.7 million and also lagged the Zacks Consensus Estimate of $930 million. The downside can be attributed to adverse impacts of foreign currency translations. However, the decline was offset by 1.4% organic sales growth.
Segment wise, sales at Commercial & Industrial Group dipped 2.7% to $322.5 million on adverse impacts from foreign currency. However, organic sales were up 1.5%, which reflects robust sales at this division’s specialty tools business along with higher sales to critical industries. The improvement was partly offset by lower sales at the segment’s Asia Pacific operations.
The Tools Group segment’s sales rose 1.4% year over year to $410.2 million, including a 2.9% rise in organic sales, partly hurt by currency headwinds. Organic sales growth was driven by increased sales at the U.S. franchise business, partly compensated by a decline in international operations.
Sales at Repair Systems & Information Group fell 2.7% year over year to $327.9 million due to currency headwinds. Also, organic sales at the segment dipped 0.5% on lower sales of undercar equipment, somewhat mitigated with increased sales to OEM dealerships.
Meanwhile, the Financial Services business reported revenues of $85.6 million, up from $83 million realized in the year-ago quarter.
Further, the company’s adjusted operating earnings before financial services totaled $175.8 million, down 1.1% from $177.7 million in the prior-year quarter.
Adjusted operating income edged up 1.4% to $237.9 million, while adjusted operating margin expanded 60 basis points (bps) to 23.6%.
At the end of first-quarter 2019, Snap-on’s cash and cash equivalents totaled $156.4 million compared with $140.9 million as of Dec 29, 2018. The company’s long-term debt came in at $946.7 million compared with $946 million recorded at the end of 2018.
Management remains impressed with the company’s quarterly results, which reflects a continuous recovery of its U.S. franchise network, registering sales growth in mid single digits. Although Snap-on is witnessing uncertainty in various geographies, the company has been gaining from its growth strategies including strength in value proposition of simplifying work for serious professionals.
In 2019, the company anticipates making progress on defined strategies for growth. It also expects to leverage capabilities in the automotive repair area besides strengthening its entire professional customer base. Apart from automotive repair, Snap-on expects to add customers from adjacent markets, newer geographies and other areas like critical industries.
Backed by these initiatives, Snap-on continues to expect capital expenditure of $90-$100 million in 2019, of which it spent about $20.2 million in the reported quarter. Further, its effective income tax rate for 2019 is projected to be at par with tax rate of 24% in 2018.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
At this time, Snap-On has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, 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.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, 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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