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Will Snap-On (SNA) Disappoint this Earnings Season?


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Snap-on Incorporated (SNA - Analyst Report) is scheduled to report third-quarter 2016 results, before the opening bell on Oct 20.

Over the past five years, Snap-on has been consistently beating earnings estimates. Last quarter, it registered a positive earnings surprise of 6.3% and has an average positive surprise of 3.9% for the trailing four quarters.

Let's see how things are shaping up for this announcement.

Factors to Consider

Though Snap-On’s bottom-line performance remained unaffected amid macroeconomic woes, the company is faced with multiple issues that may hurt its third-quarter results. The ongoing softness in industrial markets has significantly impacted client spending, marring the company’s prospects. Also, sluggish oil and gas market activities are likely to affect the company’s top line in the quarter to be reported.

Moreover, foreign currency fluctuations pose a major concern as one-third of the company’s revenues are derived from its European businesses. Unfavorable foreign currency translations reduced the company’s second-quarter sales by about $10.2 million. While Commercial & Industrial Group sales declined by $4.2 million, Repair Systems & Information segment recorded $2.3 million sales reduction due to adverse foreign currency translation.

Furthermore, the company’s military business prospects are tied with federal decisions and other external factors. Weak U.S. military volumes are expected to play a spoilsport for the company’s Commercial & Industrial Group segment’s performance. This apart, stiff competition and fluctuations in commodity prices, including steel, also pose as headwinds that can adversely impact Snap-On’s third-quarter results.

Despite these challenges, Snap-On’s financials have largely benefited from its value-creation process, focusing on critical areas like safety, quality of service, customer satisfaction and innovation. The company has remarkably improved its organizational efficiency by following the rapid continuous improvement (RCI) process, which has boosted sales, margins and savings significantly. During second-quarter 2016, Snap-On’s value-creation process contributed to the 140 basis point expansion in operating margin and 16.3% growth in EPS.

Additionally, Tools Group and Repair Systems & Information segments are expected to act as major profit churners on the back of positive industry trends. While factors like rising penetration in emerging markets and consistent software and hardware upgrades have been fuelling Tools Group’s growth, Repair Systems is gaining from business deals with independent repair shop owners and managers. Also, Snap-On’s flourishing financial services portfolio will likely act as a catalyst for the quarter to be reported.

Earnings Whispers

Our proven model does not conclusively show that Snap-on will beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below.

Zacks ESP: Earnings ESP for the stock currently stands at 0.00%. This is because both the Zacks Consensus Estimate and the Most Accurate estimate are pegged at $2.15.

Zacks Rank: Snap-On carries a Zacks Rank #4 (Sell). As it is, we caution against Sell-rated stocks (Zacks Rank #4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

SNAP-ON INC Price and EPS Surprise


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

Stocks That Warrant a Look

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Live Nation Entertainment, Inc. (LYV - Snapshot Report) has an Earnings ESP of +6% and carries a Zacks Rank #1. The company is slated to release results on Nov 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Mattel, Inc. (MAT - Analyst Report) has an Earnings ESP of +1.43% and carries a Zacks Rank #1. The company is slated to release results on Oct 19.

Nexstar Broadcasting Group, Inc. (NXST - Snapshot Report) has an Earnings ESP of +12.64% and carries a Zacks Rank #2. It is scheduled to report results on Nov 8.

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