It has been about a month since the last earnings report for Snap-On (SNA - Free Report) . Shares have added about 17.6% 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 the most recent earnings report in order to get a better handle on the important catalysts.
Snap-On's Q1 Earnings Miss Estimates, Sales Down Y/Y
Snap-On posted lower-than-expected first-quarter 2020 results. The top and bottom lines decreased year over year. Results were affected by the tough economic environment and unprecedented COVID-19 impacts. Also, lower sales volume in most of the regions and segments hurt quarterly results.
Q1 in Detail
Snap-On’s adjusted earnings of $2.60 per share in first-quarter 2020 missed the Zacks Consensus Estimate of $2.75. Moreover, the figure was down 13.6% from the year-ago quarter’s adjusted earnings of $3.01 per share.
Net sales declined 7.5% to $852.2 million and lagged the Zacks Consensus Estimate of $879 million. The downside can be attributed to soft organic sales to the tune of 6.9% and a $10.3-million adverse impact from foreign currency translations. However, the growth was offset by $3.5 million in contributions from acquisitions.
Further, the company’s adjusted operating earnings before financial services totaled $146.4 million, down 16.7% from $175.8 million in the prior-year quarter.
Adjusted operating earnings of $203.3 million were down 14.5% from the prior-year quarter. Additionally, adjusted operating earnings margin contracted 190 basis points to 21.7%.
Sales at Commercial & Industrial Group fell 7% from the prior-year quarter to $299.9 million due to organic sales decline of 5.7% and currency headwinds of $5.3 million. This was somewhat offset by $0.7million gains from acquisitions. Sluggishness in Asia-Pacific operations and the Europe-based hand tools business hurt sales in this segment, which was partly offset by higher sales in the power tools division.
The Tools Group segment’s sales fell 8.4% year over year to $375.9 million due to a 7.8% decline in organic sales and a $2.5 million impact of currency headwinds. Organic sales were hurt by soft sales in the United States and international franchise operations.
Sales at Repair Systems & Information Group declined 4.1% year over year to $314.6 million. Moreover, organic sales at the segment dipped 4% from the year-ago quarter owing to lower sales to OEM dealerships and softness in undercar equipment, offset by higher sales of diagnostics and repair information products to independent repair shop owners and managers. Further, unfavorable currency rates hurt the top line to the tune of $3.2 million. However, sales of $2.8 million from buyouts aided growth.
Nevertheless, the Financial Services business reported revenues of $85.9 million, up from $85.6 million in the year-ago quarter.
During the quarter, Snap-On’s cash and cash equivalents totaled $185.8 million compared with $184.5 million, as of Dec 28, 2019.
Given the coronavirus pandemic, which hasled to supply-chain disruptions, Snap-On anticipates sales and earnings to be lower year over year during second-quarter 2020. Further, it is making efforts, including cost-cutting initiatives and the Rapid Continuous Improvement (RCI) plan in a bid to combat the uncertain COVID-19 impacts.
Also, the company foresees capital expenditure for 2020 to be $70-$80 million, out of which $17.2 million has been incurred in the reported quarter. Moving ahead, it still projects effective income tax rate for 2020 in the range of 23-24%.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -8.48% due to these changes.
Currently, Snap-On has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. 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. It's no surprise Snap-On has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.