Why Snap-on Stock Popped 10% Today
What happened
Shares of toolmaker Snap-on (NYSE: SNA) jumped nearly 10% in Thursday trading, closing the day up 9.6% after reporting fiscal Q2 financials that missed analyst expectations for sales, but crushed on earnings.
Expected to report $2.95 per share in profit on quarterly sales of $956.3 million, Snap-on instead confirmed that it had EPS of $3.12, albeit on sales of only $954.6 million.
Snap-on earnings provide a lesson in the benefits of tax reform. Image source: Getty Images.
So what
More important than merely "beating earnings," Snap-on showed very strong growth in its fiscal second quarter. Sales climbed only 4% year over year, but Snap-on expanded its operating profit margins by 30 basis points to 20.2%, and goosed its earnings further by paying a lower tax rate than it faced in Q2 last year. (So thanks, tax reform.) Buybacks shrunk the company's share count, too, by about 3%, further concentrating earnings among fewer shares.
Perhaps best of all, Snap-on grew its cash from operations 47% year over year. With capital spending rising only 30% (and being a much smaller sum to boot), this worked out to 49% growth in free cash flow. With $166.3 million in total free cash flow, cash profits now back up about 91% of reported earnings.
Now what
Snap-on didn't provide detailed guidance of what to expect later this year. Analysts who follow the company, however, expect it to report full-year EPS of $11.66 on sales of $3.83 billion -- 15% growth in profits on continued sales growth in the 4% range.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
