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Snap-on's (SNA) Q2 Earnings Lag Estimates, Sales Decline Y/Y

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Snap-on Incorporated (SNA - Free Report) posted mixed results in second-quarter 2020, wherein the top line outpaced the Zacks Consensus Estimate while the bottom line missed. However, both the metrics decreased year over year. Results were hurt by the adverse impacts of COVID-19.

Year to date, shares of this Zacks Rank #4 (Sell) company have lost 14.2% compared with the industry's 12% decline.

Q2 Details

Snap-on’s adjusted earnings of $1.91 per share in second-quarter 2020 missed the Zacks Consensus Estimate of $1.94. Moreover, the figure was down 40.7% from the year-ago quarter’s reported figure.

Snap-on Incorporated Price and EPS Surprise

SnapOn Incorporated Price and EPS Surprise

Snap-on Incorporated price-eps-surprise | Snap-on Incorporated Quote

Net sales declined 23.9% to $724.3 million but came above the Zacks Consensus Estimate of $708 million. The year-over-year downside can be attributed to soft organic sales to the tune of 22.9% and a $14.4 million of adverse foreign-currency impacts. However, the growth was offset by $2.3 million in contributions from acquisitions.

Further, the company’s adjusted operating earnings before financial services totaled $95.1 million, down nearly 49.9% from $189.9 million in the prior-year quarter.

Adjusted operating earnings of $152.7 million were down 39% from the prior-year quarter. Additionally, adjusted operating earnings margin contracted 530 basis points to 18.9%.

Segmental Details

Sales at Commercial & Industrial Group fell 21.8% from the prior-year quarter to $261.9 million due to organic sales decline of 20.2% and currency headwinds of $6.9 million. Organic sales decline includes mid-teen decrease in sales to customers in critical industries and the power tools operation.

The Tools Group segment’s sales dropped 20.3% year over year to $323.3 million due to a 19.7% decline in organic sales and a $3.3 million impact of currency headwinds. Organic sales were hurt by soft sales in the United States and roughly 40% decrease in the segment’s international operations.

Sales at Repair Systems & Information Group declined 29.8% year over year to $245 million. Moreover, organic sales at the segment dipped 29.5% from the year-ago quarter owing to lower sales to OEM dealerships and softness in undercar equipment, along with lower sales of diagnostic and repair information products. Further, unfavorable currency rates hurt the top line to the tune of $4.8 million. However, sales of $2.3 million from buyouts aided growth.

Nevertheless, the Financial Services business reported revenues of $84.6 million, up from $84.1 million in the year-ago quarter.

Financials

During the quarter, Snap-on’s cash and cash equivalents totaled $686.2 million compared with $184.5 million as of Dec 28, 2019. Further, the company’s net cash generated from operating activities came in at $253.6 million at the quarter end.

Looking Ahead

Despite the COVID-19 crisis, Snap-on saw improving trends in the reported quarter.  Management expects sequential improvements to continue in the near term. The company has been responding to the global macroeconomic headwinds via its Rapid Continuous Improvement, sourcing and other cost-containment efforts. Moreover, Snap-on remains focused on the defined runways for growth, leveraging capabilities in the automotive-repair arena and enhancing its professional customer base.

In addition, the company will be managing the cash flows with capital-allocation priorities. It expects capital expenditures between $75 million and $85 million for the year, of which $29 million was spent in the first half. It envisions the effective income tax rate in the band of 23-25% for 2020.

Better-Ranked Stocks

Rocky Brands (RCKY - Free Report) has delivered a significant earnings surprise in the last-reported quarter and currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Crocs (CROX - Free Report) , also a Zacks Rank #1 stock having an expected long-term earnings growth rate of 15%.

Duluth Holdings (DLTH - Free Report) has a trailing four-quarter average earnings surprise of 19.3% and  presently displays a Zacks Rank #2 (Buy).

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