A month has gone by since the last earnings report for Snap-On (SNA). Shares have added about 9% 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 Q3 Earnings Beat, Sales Fall Shy of Estimates
Snap-on maintained its positive earnings surprise streak in third-quarter 2018. The company reported adjusted earnings of $2.88 per share, which surpassed the Zacks Consensus Estimate of $2.85 and improved 17.6% from the year-ago quarter’s number.
On a GAAP basis, the company posted earnings of $2.85, which increased 24.5% on a year-over-year basis. The bottom line benefited from Snap-on’s robust business model and focus on value-creation processes. Higher sales owing to gains from acquisitions, broad-based strength in Commercial & Industrial Group division and increased sales in the U.S. franchise operations further boosted Snap-on’s bottom-line performance.
Q3 in Detail
Net sales in the quarter dipped 0.6% to $898.1 million and also came below the Zacks Consensus Estimate of $929 million. The downside can be attributed to adverse impacts from currency translations, somewhat offset by organic sales growth of 0.6% and gains from acquisitions.
Segment-wise, Commercial & Industrial Group sales improved 5% to $330.2 million. Organic sales were up 6.7%. Increased sales to customers in critical industries along with higher sales of power tools and in the segment’s Asia Pacific business, and a slight rise in sales at European-based hand tools business drove organic sales. This was somewhat marred by currency headwinds.
Snap-on’s Tools Group segment’s sales dipped 0.7% year over year to $389.8 million. However, organic sales at the segment inched up 0.1%, which was partly hurt by currency headwinds. Organic sales growth was driven by increased sales at the company’s U.S. franchise business, which was largely compensated with decline in sales in the international franchise business.
Repair Systems & Information Group’s segment sales decreased 5.7% year over year to $314.4 million. Also, organic sales at the segment declined 4.8% from the prior-year quarter. Decrease in sales of diagnostics and repair information products to independent repair shop owners led to sales decline. Also, lower sales to OEM dealerships hurt the segment’s top line. However, sales of undercar equipment remained flat.
Meanwhile, the Financial Services business reported revenues of $82 million, up from $79 million in the year-ago quarter.
Further, the company’s operating earnings before financial services totaled $173.1 million, up 3.2% from $167.7 million in the prior-year quarter.
Liquidity
At the end of the reported quarter, Snap-on’s cash and cash equivalents summed $122.2 million compared with $92 million at 2017-end. The company’s long-term debt came in at $944.8 million at quarter end, up from $753.6 million recorded at the end of 2017.
Looking Ahead
Management remains impressed with its quarterly results and expects to continue with the trend in 2018. This apart, Snap-on is making efforts to revive its performance at the Tools Group division. Additionally, the company expects to leverage on its capabilities in the automotive repair area besides strengthening its overall professional customer base.
Based on these factors, Snap-on still expects to incur capital expenditures in the band of $90-$100 million in 2018, of which $68.6 million was spent in the first nine months of the year. Further, the effective income tax rate is projected to be in the range of 24-25% for 2018.
How Have Estimates Been Moving Since Then?
Fresh estimates followed a downward path over the past two months.
VGM Scores
Currently, Snap-On has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, 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.
Outlook
Snap-On has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Snap-On Incorporated (NYSE:SNA
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