Snap-on Announces Third Quarter 2019 Results
Q3 2019 diluted EPS of $2.96, up 3.9% from Q3 2018, and up 2.8% from Q3 2018 adjusted diluted EPS; Reported net sales of $901.8 million up 0.4%; Organic net sales up 1.4%
KENOSHA, Wis. — (Trailer Technician) — Snap-on Incorporated (NYSE: SNA), a leading global innovator, manufacturer and marketer of tools, equipment, diagnostics, repair information and systems solutions for professional users performing critical tasks, today announced operating results for the third quarter of 2019.
- Net sales of $901.8 million increased $3.7 million, or 0.4%, from 2018 levels, reflecting a $12.5 million, or 1.4%, organic sales increase and $2.9 million of acquisition-related sales, partially offset by $11.7 million of unfavorable foreign currency
- Operating earnings before financial services for the quarter of $167.7 million, or 18.6% of sales, including $4.4 million of unfavorable foreign currency effects, compared to $173.1 million, or 19.3% of sales, in
- Financial services revenue of $84.1 million in the third quarter of 2019 increased $2.1 million from 2018 levels; financial services operating earnings of $61.0 million increased $1.7 million from $59.3 million last
- Consolidated operating earnings for the quarter of $228.7 million, including $4.7 million of unfavorable currency effects, compared to $232.4 million last year. As a percentage of revenues (net sales plus financial services revenue), consolidated operating earnings were 23.2% and 23.7% in the third quarters of 2019 and 2018,
- The effective income tax rate of 23.5% in the quarter compared to 24.0% last year. In 2018, the effective income tax rate included a charge of 90 basis points, or $1.8 million, related to the implementation of U.S. tax legislation (the “tax charge”). Excluding the tax charge, the 2018 effective tax rate, as adjusted, was 1%.
- Net earnings of $164.6 million, or $2.96 per diluted share, compared to $163.2 million, or $2.85 per diluted share, a year Excluding the above-mentioned tax charge, net earnings, as adjusted, were $165.0 million in 2018, or $2.88 per diluted share.
See “Non-GAAP Measures” below for a definition of, and further explanation about, organic sales and measures, as adjusted, excluding the tax charge.
“Our third quarter results were encouraging, demonstrating overall organic growth and clear and positive progress with customers across our U.S. operations. Despite ongoing headwinds related to challenged geographies and to unfavorable currency, we believe the overall macro-environment for vehicle repair and critical industries generally remains favorable and affords ongoing opportunities,” said Nick Pinchuk, Snap-on chairman and chief executive officer. “Through our Snap-on Value Creation Processes, the quarter saw continued strengthening of our product lines, matching the increasing complexity of workplace tasks and reinforcing our commitment to making work easier for serious professionals. Along those lines, Snap-on again was honored to receive product awards from both MOTOR Magazine and the Professional Tools & Equipment News. We believe this recognition confirms Snap-on’s success in connecting with customers and translating that insight into decisive innovations. Finally, our results are only possible with the significant effort and contributions from our franchisees and associates, and I thank them for their capability and their dedication.”
Segment Results
Commercial & Industrial Group segment sales of $335.3 million in the quarter increased $5.1 million, or 1.5%, from 2018 levels, reflecting a $9.5 million, or 2.9%, organic sales gain and $1.1 million of acquisition-related sales, partially offset by $5.5 million of unfavorable foreign currency translation. The organic sales increase includes higher sales in the segment’s specialty tools and European-based hand tools businesses, as well as increases with customers in critical industries.
Operating earnings of $48.3 million in the period, including $0.7 million of unfavorable foreign currency effects, compared to $53.0 million in 2018, while the operating margin (operating earnings as a percentage of segment sales) of 14.4% compared to 16.1% a year ago.
Snap-on Tools Group segment sales of $385.2 million in the quarter decreased $4.6 million, or 1.2%, from 2018 levels, reflecting a $1.3 million, or 0.3%, organic sales decline and $3.3 million of unfavorable foreign currency translation. The organic sales decrease includes lower sales in the segment’s international operations, partially offset by higher sales in the United States.
Operating earnings of $53.0 million in the period, including $2.7 million of unfavorable foreign currency effects, decreased $6.3 million from 2018 levels, and the operating margin of 13.8% compared to 15.2% last year.
Repair Systems & Information Group segment sales of $322.7 million in the quarter increased $8.3 million, or 2.6%, from 2018 levels, reflecting a $10.1 million, or 3.2%, organic sales gain and $1.8 million of acquisition-related sales, partially offset by $3.6 million of unfavorable foreign currency translation. The organic sales increase includes higher sales to OEM dealerships and increased sales of diagnostics and repair information products to independent repair shop owners and managers, partially offset by lower sales of undercar equipment.
Operating earnings of $83.3 million in the period, including $1.0 million of unfavorable foreign currency effects, increased $2.6 million from 2018 levels, and the operating margin of 25.8% compared to 25.7% a year ago.
Financial Services operating earnings of $61.0 million on revenue of $84.1 million in the quarter compared to operating earnings of $59.3 million on revenue of $82.0 million a year ago. Originations of $253.5 million in the third quarter decreased $13.5 million, or 5.1%, from 2018 levels.
Corporate expenses of $16.9 million in the quarter compared to $19.9 million last year.
Outlook
Snap-on expects to make continued progress through the remainder of 2019 along its defined runways for coherent growth, leveraging capabilities already demonstrated in the automotive repair arena and developing and expanding its professional customer base, not only in automotive repair, but in adjacent markets, additional geographies and other areas, including extending in critical industries, where the cost and penalties for failure can be high. In pursuit of these initiatives, Snap-on expects that capital expenditures in 2019 will be in a range of $95 million to $105 million, of which $77.8 million was incurred in the first nine months of the year.
Snap-on currently anticipates that its full year 2019 effective income tax rate will be comparable to its full year 2018 effective tax rate of 24.0%.
Conference Call and Webcast on October 17, 2019, at 9:00 a.m. Central Time
A discussion of this release will be webcast on Thursday, October 17, 2019, at 9:00 a.m. Central Time, and a replay will be available for at least 10 days following the call. To access the webcast, visit https:// www.snapon.com/EN/Investors/Investor-Events and click on the link to the call. The slide presentation accompanying the call can be accessed under the Downloads tab in the webcast viewer, as well as on the Snap-on website at https://www.snapon.com/EN/Investors/Financial-Information/Quarterly-Earnings.
Non-GAAP Measures
References in this document to “organic sales” refer to sales from continuing operations calculated in accordance with generally accepted accounting principles in the United States (“GAAP”), adjusted to exclude acquisition-related sales and the impact of foreign currency translation. Management evaluates the company’s sales performance based on organic sales growth, which primarily reflects growth from the company’s existing businesses as a result of increased output, customer base and geographic expansion, new product development and/or pricing, and excludes sales contributions from acquired operations the company did not own as of the comparable prior-year reporting period. The company’s organic sales disclosures also exclude the effects of foreign currency translation as foreign currency translation is subject to volatility that can obscure underlying business trends. Management believes that the non- GAAP financial measure of organic sales is meaningful to investors as it provides them with useful information to aid in identifying underlying growth trends in our businesses and facilitates comparisons of our sales performance with prior periods.
For the nine months ended September 28, 2019, the company is including operating earnings before financial services, consolidated operating earnings, net earnings, diluted earnings per share and its effective tax rate, all as adjusted to exclude the impact of an $11.6 million benefit ($8.7 million after tax) from a legal settlement that occurred in the three months ended March 30, 2019.
For the three and nine months ended September 29, 2018, the company is including net earnings, diluted earnings per share and its effective tax rate, all as adjusted, to exclude the impact of $1.8 million and $3.9 million of charges, respectively, related to the implementation of U.S. tax legislation. In addition, for the nine months ended September 29, 2018, the company is including net earnings and diluted earnings per share, both as adjusted to exclude a net gain of $5.5 million ($4.1 million after tax) associated with a treasury lock settlement gain of $13.3 million related to the issuance of debt, partially offset by a $7.8 million expense related to the early extinguishment of debt.
Management believes that these are unusual events and therefore the non-GAAP financial measures adjusted to exclude them provide more meaningful year-over-year comparisons of the company’s 2019 operating performance. For a reconciliation of the adjusted metrics, see “Reconciliation of Non-GAAP Financial Measures” below.
About Snap-on
Snap-on Incorporated is a leading global innovator, manufacturer and marketer of tools, equipment, diagnostics, repair information and systems solutions for professional users performing critical tasks. Products and services include hand and power tools, tool storage, diagnostics software, information and management systems, shop equipment and other solutions for vehicle dealerships and repair centers, as well as for customers in industries, including aviation and aerospace, agriculture, construction, government and military, mining, natural resources, power generation and technical education. Snap-on also derives income from various financing programs to facilitate the sales of its products and support its franchise business. Products and services are sold through the company’s franchisee, company-direct, distributor and internet channels. Founded in 1920, Snap-on is a $3.7 billion, S&P 500 company headquartered in Kenosha, Wisconsin.
Forward-looking Statements
Statements in this news release that are not historical facts, including statements that (i) are in the future tense; (ii) include the words “expects,” “anticipates,” “intends,” “approximates,” or similar words that reference Snap-on or its management; (iii) are specifically identified as forward-looking; or (iv) describe Snap-on’s or management’s future outlook, plans, estimates, objectives or goals, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Snap-on cautions the reader that this news release may contain statements, including earnings projections, that are forward-looking in nature and were developed by management in good faith and, accordingly, are subject to risks and uncertainties regarding Snap-on’s expected results that could cause (and in some cases have caused) actual results to differ materially from those described or contemplated in any forward-looking statement. Factors that may cause the company’s actual results to differ materially from those contained in the forward-looking statements include those found in the company’s reports filed with the Securities and Exchange Commission, including the information under the “Safe Harbor” and “Risk Factors” headings in its Annual Report on Form 10-K for the fiscal year ended December 29, 2018, which are incorporated herein by reference. Snap-on disclaims any responsibility to update any forward-looking statement provided in this news release, except as required by law.