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Snap-on's Growth Plans Bode Well, Tools Group Unit Hurts

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Snap-on Incorporated (SNA - Free Report) has been taking strategic actions to boost growth. In this regard, the company’s Rapid Continuous Improvement (RCI) program, designed to enhance organizational effectiveness and efficiency as well as generate savings and boost margins, is worth mentioning. However, headwinds across the company’s Tools Group division have been hurting its top-line performance. Also, the adverse impacts of foreign currency translations cannot be ignored.

A glance at the company’s price performance shows that shares of this tools and equipment maker have gained 9.6% in the past three months compared with the industry’s 9.4% rally.

Delving Deeper

Snap-on’s robust business model helps in enhancing value-creation processes, which in turn, improves safety, quality of service, customer satisfaction and innovation. The company’s growth strategy focuses on three critical areas namely, enhancing the franchise network, improving the relationship with repair shop owners and managers, and expanding critical industries in emerging markets.

Moreover, savings from the RCI initiative reflect gains from continuous productivity and process improvement plans. Management intends to boost customer services and enhance manufacturing and supply-chain capabilities through the RCI initiatives and further investments. Meanwhile, Snap-on’s Repair Systems & Information Group and Commercial & Industrial Group segments are performing well.

Higher organic sales driven by increased sales to original equipment manufacturer dealerships as well as contributions from buyouts, and rise in sales of diagnostics and repair information products have been driving Repair Systems & Information Group. Robust sales at the Commercial & Industrial Group division’s specialty tools and European hand tools businesses aided organic sales. This coupled with higher sales to customers in critical industries are aiding growth across Commercial & Industrial Group.

Despite these positives, sales at Tools Group dipped 1.2% in third-quarter 2019, thanks to a 0.3% decline in organic sales and a $3.3-million impact of currency headwinds. Organic sales were hurt by lower sales in the segment’s international business, partly compensated with sales growth in the United States. Moreover, higher spending for the segment’s in-field support and training, which is likely to enable powerful and new products, resulted in increased costs. These costs remain drag on margins and overall profits in quarters ahead.

As stated earlier, the adverse impacts of currency are hurting Snap-on’s overall performance and segments’ results. Apparently, currency had negative impacts of $11.7 million and $4.4 million on the company’s sales and operating income, respectively, in the third quarter. Moreover, currency impacts of $5.5 million, $3.3 million and $3.6 million have hurt the company’s Commercial & Industrial Group, Tools Group, and Repair Systems & Information Group segments, respectively, in the reported quarter. Unfavorable currency translations might continue to be deterrents.

Wrapping Up

Management expects to continue delivering coherent growth and leverage capabilities in the automotive repair business for the rest of 2019. It also expects to develop and expand its professional customer base in the automotive repair business and adjacent industries, additional geographies, and other areas like critical industries.

Impressively, Snap-on boasts a robust earnings surprise trend, beating the Zacks Consensus Estimate in six of the trailing seven quarters. The aforesaid strategic endeavors have been fueling the company’s bottom-line performance.

Further, a VGM Score of B with an expected long-term earnings growth rate of 8.5% clearly demonstrates this Zacks Rank #3 (Hold) stock’s potential.

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