A month has gone by since the last earnings report for Snap-On (SNA - Free Report) . Shares have added about 3.9% 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 Q4 Earnings In Line, Revenues Lag Estimates
Snap-on has reported adjusted earnings of $3.03 per share in fourth-quarter 2018, in line with the Zacks Consensus Estimate of $3.03 and up 12.6% from the year-ago quarter.
On a GAAP basis, the company posted earnings of $3.09, which increased 37.9% 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.
Q4 in Detail
Net sales dropped 2.3% to $952.5 million and lagged the Zacks Consensus Estimate of $963.2 million. The downside can be attributed to adverse impacts of currency translations and organic sales decline of 0.6%, somewhat offset by gains from acquisitions.
Segment wise, sales for Commercial & Industrial Group improved 0.6% to $343.7 million. Organic sales were up 3.5%. Increased sales to critical industries, higher sales in the segment’s Asia Pacific operations and specialty tools business, and rise in sales at Europe-based hand tools business drove the upside. This was somewhat marred by currency headwinds.
The Tools Group segment’s sales dipped 0.4% year over year to $407.4 million. However, organic sales at the segment inched up 0.4%, which was partly hurt by currency headwinds. Organic sales growth was driven by increased sales at the U.S. franchise business, which was partly compensated by a decline in international operations.
Sales for Repair Systems & Information Group decreased 4.7% year over year to $339.9 million. Also, organic sales at the segment declined 3.5% from the prior-year quarter. Lower sales of OEM dealerships and reduced sales of undercar equipment led to sales decline.
Meanwhile, the Financial Services business reported revenues of $82.7 million, up from $79.9 million in the year-ago quarter.
Further, the company’s adjusted operating earnings before financial services totaled $177.8 million, down 5.9% from $188.9 million in the prior-year quarter. Adjusted operating income declined 3.9% to $233.9 million while adjusted operating margin contracted 50 basis points (bps) to 22.6%.
At the end of 2018, Snap-on’s cash and cash equivalents summed $140.9 million compared with $92 million at the end of 2017. The company’s long-term debt came in at $946 million, up from $753.6 million recorded at the end of 2017.
Management remains impressed with the quarterly results and expects to continue with the trend in 2019. The company anticipates making progress on defined strategies for growth in 2019. This apart, Snap-on is making efforts to revive performance at the Tools Group division. It expects to leverage its capabilities in the automotive repair area beside strengthening the overall professional customer base. Apart from automotive repair, it expects to add customers from adjacent markets, newer geographies and other areas like critical industries.
Driven by these initiatives, Snap-on expects to incur capital expenditure of $90-$100 million in 2019. Further, effective income tax rate for 2019 is projected to be at par with tax rate of 24% in 2018.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
Currently, Snap-On has a great Growth Score of A, though it is lagging a lot 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.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Snap-On has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.