Snap-On (SNA) Down 11.4% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Snap-On (SNA). Shares have lost about 11.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Snap-On due for a breakout? 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 Q4 Earnings Surpass Estimates, Sales Miss

Snap-on reported earnings of $3.08 per share in fourth-quarter 2019, in line with the Zacks Consensus Estimate. However, the figure was up 1.7% from the year-ago adjusted earnings of $3.03 per share.

Earnings benefited from Snap-on’s robust business model and effectiveness of its value-creation processes. Improved sales in U.S. operations and overall organic sales growth boosted the company’s quarterly performance.

Net sales inched up 0.3% to $955.2 million but lagged the Zacks Consensus Estimate of $963.3 million. The year-over-year increase can be attributed to 0.6% organic sales growth and $3.5-million contribution from acquisitions. However, growth was offset by a $6.3-million adverse impact from foreign currency translations.

Further, the company’s operating earnings before financial services totaled $171.4 million, down 5.9% from $182.1 million in the prior-year quarter.

Consolidated operating earnings of $233.6 million were down 1.9% from the prior-year quarter. Additionally, operating earnings margin contracted 50 basis points to 22.5%.

Segmental Details

Sales at Commercial & Industrial Group improved 2.7% from the prior-year quarter to $352.9 million, backed by organic sales growth of 3.5% and contribution of $0.9 million from acquisition-related sales. Robust sales at the division’s power tools and Asia Pacific operations aided organic sales. Notably, higher sales to customers in critical industries also contributed to the increase. The upside was somewhat offset by a $3.5-million adverse impact from foreign currency.

The Tools Group segment’s sales rose 1.1% year over year to $411.7 million, driven by 1.3% growth in organic sales, offset by a $1-million impact of currency headwinds. Organic sales benefited from robust sales in the U.S. van network, partially negated by a decline in the segment’s international operations.

Sales at Repair Systems & Information Group declined 1.4% year over year to $335 million. Moreover, organic sales at the segment dipped 1.5% from the year-ago quarter, owing to lower sales to OEM dealerships, offset by rise in sales of undercar equipment, and higher sales of diagnostics and repair information products to independent repair shop owners and managers. Further, unfavorable currency rates hurt top-line growth to the tune of $2.3 million. However, sales of $2.6 million from buyouts aided growth.

Meanwhile, the Financial Services business reported revenues of $83.9 million, up from $82.7 million in the year-ago quarter.

Financials

At the end of 2019, Snap-on’s cash and cash equivalents totaled $184.5 million compared with $140.9 million as of Dec 29, 2018.

Looking Ahead

In 2020, which is its 100th anniversary year, the company expects to deliver coherent growth and leverage capabilities demonstrated in the automotive repair arena. It also expects to develop and expand the professional customer base in the automotive repair business as well as in adjacent industries, additional geographies and other areas like critical industries. Backed by these initiatives, the company expects capital expenditure of $90-$100 million for 2020.

Further, its effective income tax rate for 2020 is projected to be 23-24%.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months.

VGM Scores

At this time, Snap-On has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, 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.

Outlook

Snap-On has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.