Snap-On's (SNA) Strategies On Track, Tools Group A Concern

Snap-On Incorporated (NYSE:SNA) is benefiting from an impressive business model and focuses on value-creation processes that seem to be accretive. Additionally, product innovation efforts, gains from acquisitions and broad-based strength in Commercial & Industrial Group division also bode well.

These factors have helped this Zacks Rank #3 (Hold) company gain 7.2% in the past six months, outperforming the industry’s growth of 6.9%. Analysts also believe that the stock has upside potential as apparent from a VGM score of B.

Key Catalysts

Snap-on’s robust business model, which helps in enhancing the value-creation processes, led to bottom-line growth in the third quarter 2018. The company’s growth strategy focuses on enhancing the franchise network, improving relationship with repair shop owners and managers, and expanding critical industries in emerging markets.

Notably, the Rapid Continuous Improvement (RCI) process is designed to enhance organizational effectiveness and minimize costs besides helping Snap-on boost sales and margins, and generate savings. Savings from the RCI initiative reflect gains from continuous productivity and process improvement plans. Moreover, management intends to boost customer services along with enhancing manufacturing and supply-chain capabilities through the RCI initiatives and further investments.

Apart from these, Snap-On’s product innovation efforts have been contributing to sales growth over the last few quarters. The company has been investing in new products and increasing brand awareness globally. Keeping in these lines, Snap-On launched a number of products across its segments in the past few quarters, which have been aiding the quarterly results.

Further, the company focuses on acquisitions to strengthen its portfolio. Its buyout of Torque Control Specialists Pty Ltd in 2017 is boosting the company’s Commercial & Industrial Group segment’s results. In third-quarter 2018, sales generated from acquisitions totaled $1.4 million, including Norbar operations and FASTORQ business.

Hurdles

Despite these positives, Snap-On is witnessing softness in its Tools Group segment for a while now. In the third quarter of 2018, sales for this segment continued to show weakness, recording 0.7% decline year over year. Lower sales at the company’s International franchise business dented the segment’s growth. Management is making constant efforts to revive performance at the Tools Group division, which are expected to benefit the segment.

Additionally, the company is exposed to major volatility in raw-material prices. Going ahead, any increase in the price of raw materials might force Snap-on to increase product prices, which, in turn, are likely to exert pressure on margins.

Bottom Line

All said, we are optimistic that the company’s growth plans will help offset these afore-mentioned hurdles.

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