Snap-on Exceeds Consensus - Analyst Blog

Snap-on Incorporated (SNA) reported fourth quarter 2009 earnings per share from continuing operations of 63 cents, exceeding the Zacks Consensus Estimate of 55 cents.

Sales of $618.1 million in the quarter were up $36.3 million, or 6.2%, sequentially from third-quarter 2009 levels. Fourth-quarter 2009 sales declined 7.4% from 2008 levels; excluding foreign currency translation, organic sales declined 11.1%.

Gross profit of $284.4 million in the quarter represented 46.0% of sales, compared with 44.8% in the 2009 third quarter and 44.9% a year ago.

Segment Overview

Commercial & Industrial Group operating earnings in the fourth quarter increased sequentially by $12.2 million over third-quarter 2009 levels on $36.8 million of higher sales. Segment sales of $302.2 million in the fourth quarter declined $24.6 million, or 7.5%, from 2008 levels; excluding foreign currency translation organic sales declined $41.9 million, or 12.2%. Continued lower sales in Europe were partially offset by higher sales in emerging growth markets and increased sales of equipment in North America.

Snap-on Tools Group operating earnings in the fourth quarter increased $3.9 million sequentially over third-quarter 2009 levels on $4.6 million of higher sales. Segment sales of $251.2 million in the quarter declined $1.2 million, or 0.5%, from 2008 levels; excluding $8.5 million of foreign currency translation, organic sales declined 3.7%.

Diagnostics & Information Group operating earnings in the fourth quarter declined $0.7 million sequentially from third-quarter 2009 levels on $2.9 million of lower sales. Segment sales of $129.1 million in the quarter declined $23.8 million, or 15.6%, from 2008 levels; excluding $1.9 million of foreign currency translation, organic sales declined 16.6%.

The year-over-year sales decrease is primarily due to lower facilitation program, essential tools and electronic parts catalog sales to original equipment manufacturer (OEM) dealerships.

Financial Services revenue of $6.7 million in the fourth quarter improved sequentially from $6.0 million in the third quarter of 2009, and the fourth-quarter 2009 operating loss of $3.8 million also improved sequentially from an operating loss of $5.3 million in the third quarter of 2009. Financial services revenues of $6.7 million in the quarter declined $13.0 million from 2008 levels.

On July 16, 2009, Snap-on terminated the financial services operating agreement that it had with CIT Group Inc. (CIT) relating to the parties’ Snap-on Credit LLC (SOC) joint venture. The change from recognizing gains on contracts sold to CIT, to recognizing the interest yield on the on-book finance portfolio, was a primary factor in the fourth quarter operating loss of $3.8 million, as compared to operating income of $8.9 million in the 2008 fourth quarter.

Balance Sheet and Cash Flow

Cash and equivalents were $699 million with long-term debt of $902 million and shareowners’ equity of $1.3 billion.

Operating cash flow of $96.7 million in the quarter increased from $47.8 million last year. For the full year, operating cash flow of $347.1 million in 2009 increased $126.7 million over 2008 levels.

Looking Ahead

The company anticipates continuing with its planned strategic investments, including expansion in emerging growth markets. Snap-on currently expects to incur approximately $18 million to $22 million of restructuring costs in 2010 primarily to improve the company’s cost structure in Europe.

In 2010, Snap-on expects to incur $5 million per quarter of higher pension expense, largely due to the amortization of prior-year investment losses related to the company’s U.S. pension plan assets. Capital expenditures in 2010 are anticipated to be in a range of $55 million to $60 million.

Snap-on Incorporated manufactures and markets tools, diagnostics, equipment, software, and service solutions for professional users. Its products include hand tools, power tools and tool control systems. Major competitors are The Black & Decker Corporation (BDK) and Danaher Corporation (DHR).

We currently have a Neutral recommendation on SNA.

Read the full analyst report on "SNA"
Read the full analyst report on "CIT"
Read the full analyst report on "BDK"
Read the full analyst report on "DHR"
Zacks Investment Research