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Snap-On (SNA) Sustains Beat Streak in Q2, Earnings Up Y/Y

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Snap-on Incorporated (SNA - Free Report) added another earnings beat to its long-standing winning streak, as it reported second-quarter 2016 net earnings of $2.36 per share, which surpassed the Zacks Consensus Estimate of $2.22 by 6.3%. The bottom line also reflected an increase of 16.3% from the year-ago figure of $2.03.

Snap-On Inc. (SNA - Free Report) Street EPS & Surprise Percent - Last 5 Quarters | FindTheCompany

 

Quarterly earnings benefited from top-line growth as well as lower operating expenses.

Inside the Headlines

Net sales in the second quarter increased 2.4% year over year to $872.3 million, but missed the Zacks Consensus Estimate of $877 million by a small margin. Excluding acquisition-related expenses and unfavorable foreign currency translation effect, organic sales rose 2.9% year over year.

While decent sales growth in Snap-on Tools Group supported growth in the top line, softness in the Commercial & Industrial Group segment sales proved to be a headwind, offsetting the positive effect to some extent. Repair Systems & Information unit stood out with a strong performance in the quarter.

Segment-wise, Commercial & Industrial Group sales continued to show weakness, decreasing 3.4% year over year to $285.7 million. Organic sales were down 2%, primarily due to lower sales in critical industries, which offset growth in Asia/Pacific and power tools operations and European-based hand tools business, thus dragging the overall sales performance of the segment. Additionally, unfavorable foreign currency translation reduced sales by $4.2 million, thereby compounding the fall.

Snap-on Tools Group revenues improved 4.5% year over year to $416.7 million. Growth in this segment was driven by solid performance of both the U.S. and international franchise operations. Also, organic sales of the segment were up an impressive 5.8%.

Repair Systems & Information revenues rose 6.4% year over year to $295.2 million. Meanwhile, organic sales of the segment improved 5.2%, driven by higher sales of diagnostics and repair information products. Also, increased sales of OEM dealerships and undercar equipment aided organic revenue growth. However, foreign currency fluctuations reduced revenues by $2.3 million, while unfavorable impact of acquisition-related expenses triggered a decline of $5.9 million. Both these factors limited organic sales growth to some extent.

On the other hand, Financial Services business reported revenues of $69.3 million, compared with $58.7 million in the year-ago quarter.

Operating earnings before financial services for the quarter came in at $166.4 million, up 10.3% from $150.8 million in the prior-year quarter.

Liquidity

At quarter end, Snap-on’s cash and cash equivalents totaled $119.9 million, compared with $124.6 million at the end of second-quarter 2015. The company’s long-term debt of $715.2 million represented a significant decline from $861.7 million at the end of 2015.

Going Forward

Snap-on’s successful earnings streak for the past several quarters reflects its capabilities to suitably leverage market opportunities for maximizing growth. The company continues to make significant efforts toward improving its operating efficiency through Snap-on Value Creation Processes that are instrumental in improving safety standards, quality and customer connection.

SNAP-ON INC Price and EPS Surprise

SNAP-ON INC Price and EPS Surprise | SNAP-ON INC Quote

Going forward, Snap-on has devised a comprehensive blueprint for 2016 that involves critical areas like enhancing franchise network, expanding footprint in vehicle repair garage & vital industries, and penetrating emerging markets. For these initiatives, Snap-on expects to incur capital expenditure in a range of $80–$90 million in 2016.

However, currency fluctuations and other macroeconomic issues can continue to be a drag on this Zacks Rank #4 (Sell) company’s financials. Also, the ongoing softness in industrial markets which are impacting client spending may thwart the growth momentum at Snap-on to some extent.

Better-ranked stocks in the broader consumer discretionary sector include Callaway Golf Co. , Smith & Wesson Holding Corporation and Take-Two Interactive Software Inc. (TTWO - Free Report) . While Callaway and Smith & Wesson sport a Zacks Rank #1 (Strong Buy), Take-Two Interactive holds a Zacks Rank #2 (Buy).

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