Snap-On, Inc. :SNA-US: Earnings Analysis: Q1, 2017 By the Numbers : April 21, 2017

Snap-On, Inc. reports financial results for the quarter ended March 31, 2017.

We analyze the earnings along side the following peers of Snap-On, Inc. – Lincoln Electric Holdings, Inc. and Toro Company (LECO-US and TTC-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 963.90 million, Net Earnings of USD 141.60 million.
  • Gross margins widened from 51.34% to 51.92% compared to the same period last year, operating (EBITDA) margins now 25.45% from 24.88%.
  • Year-on-year change in operating cash flow of 35.88% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings growth from operating margin improvements as well as one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2017-03-31 2016-12-31 2016-09-30 2016-06-30 2016-03-31
Relevant Numbers (Quarterly)
Revenues (mil) 963.9 979.2 905.7 941.6 900.5
Revenue Growth (%YOY) 7.04 7.04 2.62 3.42 1.73
Earnings (mil) 141.6 146.3 131.7 140.1 128.3
Earnings Growth (%YOY) 10.37 11.34 12.76 16.75 16.11
Net Margin (%) 14.69 14.94 14.54 14.88 14.25
EPS 2.39 2.47 2.22 2.36 2.16
Return on Equity (%) 20.97 21.98 19.92 21.82 20.67
Return on Assets (%) 11.8 12.55 11.57 12.53 11.5

Access our Ratings and Scores for Snap-On, Inc.

Market Share Versus Profits

Revenues History
Earnings History

SNA-US‘s change in revenue this period compared to the same period last year of 7.04% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that SNA-US is holding onto its market share. Also, for comparison purposes, revenues changed by -1.56% and earnings by -3.21% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s earnings growth was influenced by year-on-year improvement in gross margins from 51.34% to 51.92% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from 24.88% to 25.45% compared to the same period last year. For comparison, gross margins were 52.15% and EBITDA margins were 27.02% in the last reporting period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

SNA-US‘s improvement in gross margin has been accompanied by an improvement in its balance sheet as well. This suggests that gross margin improvements are likely from operating decisions and not accounting gimmicks. Its working capital days have declined to 89.55 days from 112.80 days for the same period last year.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

SNA-US‘s change in operating cash flow of 35.88% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

Margins

The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from 22.54% to 23.05% and (2) one-time items. The company’s pretax margins are now 21.54% compared to 20.94% for the same period last year.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

Access our Ratings and Scores for Snap-On, Inc.

Company Profile

Snap-On, Inc. engages in the development, manufacture, and market of tools, equipment, diagnostics, repair information and systems solutions for professional users. It operates its business through following segments: Commercial and Industrial Group; Snap-On Tools Group; Repair Systems and Information Group; and Financial Services. The Commercial and Industrial Group segment refers to a range of industrial and commercial customers worldwide, primarily through direct and distributor channels. The Snap-On Tools Group segment provides vehicle service and repair technicians through the company’s worldwide mobile tool distribution channel. The Repair System and Information Group segment serves other professionals vehicle repair customers worldwide, primarily owners and managers of independent repair shops and OEM dealerships through direct and distributor channels. The Financial Services segment consists of the business operations of Snap-On Credit LLC, the company’s financial services business in the United States, and Snap-On’s other financial services subsidiaries in those international markets where Snap-On has franchise operations. The company was founded by Joseph Johnson and William Seidemann in 1920 and is headquartered in Kenosha, WI.

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