KENOSHA, Wis.–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 second quarter of 2018.
- Net sales of $954.6 million increased $33.2 million, or 3.6%, from 2017 levels, reflecting a $12.1 million, or 1.3%, organic sales gain, $8.1 million of acquisition-related sales, and $13.0 million of favorable foreign currency translation.
- Operating earnings before financial services of $193.1 million improved 30 basis points to 20.2% of sales as compared to $183.7 million, or 19.9% of sales, last year.
- Financial services revenue of $82.0 million increased $4.3 million, or 5.5%, from $77.7 million in 2017; financial services operating earnings of $57.8 million increased $3.2 million, or 5.9%, from $54.6 million last year.
- Consolidated operating earnings of $250.9 million improved 30 basis points to 24.2% of revenues (net sales plus financial services revenue) as compared to $238.3 million, or 23.9% of revenues, last year.
- The second quarter effective income tax rate of 23.8% in 2018 included a benefit of 20 basis points, or $0.5 million, related to newly issued guidance associated with the U.S. tax legislation (“tax benefit”). Excluding the tax benefit, the effective tax rate, as adjusted, was 24.0%. The second quarter effective income tax rate was 30.6% in 2017.
- Net earnings of $178.7 million, or $3.12 per diluted share, compared to net earnings of $153.2 million, or $2.60 per diluted share a year ago. Excluding the above-mentioned tax benefit, net earnings, as adjusted, were $178.2 million in 2018, or $3.11 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 benefit.
At the beginning of fiscal 2018, Snap-on adopted ASU No. 2017-07, Compensation – Retirement Benefits (Topic 715) – Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The ASU requires changes be applied retrospectively; as such, certain prior year amounts have been restated to reflect this adoption and conform to the 2018 presentation.
“Our second quarter 2018 results demonstrated encouraging progress along our defined runways for growth and improvement,” said Nick Pinchuk, Snap-on chairman and chief executive officer. “Net sales growth in our Commercial and Industrial Group reflects the strength of Snap-on’s value proposition of making work easier for serious professionals in critical industries beyond vehicle repair. In our businesses serving vehicle repair, the Repair Systems and Information Group again realized strong sales of diagnostics and repair information products resulting from both successful new product launches and industry tailwinds, and we did make some progress in overcoming our challenges in the Snap-on Tools Group. We believe the overall macro-economic environment for the vehicle repair and critical industries markets we serve generally remains robust and affords significant ongoing opportunities. Our commitment to our Snap-on Value Creation Processes helped drive a 30 basis point improvement in operating margin before financial services and, coupled with benefits of the new tax legislation in the United States, a 20% year-over-year increase in earnings per diluted share. Finally, our results are only possible with the significant effort and contributions from our franchisees and associates worldwide; I thank them for their ongoing dedication and commitment.”
Commercial & Industrial Group segment sales of $337.8 million in the quarter increased $27.8 million, or 9.0%, from 2017 levels, reflecting a $13.9 million, or 4.4%, organic sales gain, $8.1 million of acquisition-related sales, and $5.8 million of favorable foreign currency translation. The organic sales increase primarily includes higher sales to customers in critical industries and slightly higher sales in the segment’s European-based hand tools business, partially offset by lower sales of power tools.
Operating earnings of $49.0 million in the period increased $6.0 million, or 14.0%, from 2017 levels, and the operating margin of 14.5% improved 60 basis points from 13.9% a year ago.
Snap-on Tools Group segment sales of $411.9 million in the quarter decreased $1.9 million, or 0.5%, from 2017 levels, reflecting a $6.1 million, or 1.5%, organic sales decline, partially offset by $4.2 million of favorable foreign currency translation. The organic sales decrease includes lower sales in the company’s U.S. franchise operations, while sales in the international franchise operations were essentially flat.
Operating earnings of $79.0 million in the period decreased $1.7 million, or 2.1%, from 2017 levels, and the operating margin of 19.2% declined 30 basis points from 19.5% a year ago.
Repair Systems & Information Group segment sales of $343.1 million in the quarter increased $5.0 million, or 1.5%, from 2017 levels, reflecting a $0.1 million organic sales gain and $4.9 million of favorable foreign currency translation. The organic sales level includes higher sales of diagnostic and repair information products to independent repair shop owners and managers, largely offset by a sales decrease of undercar equipment; sales to OEM dealerships were essentially flat.
Operating earnings of $88.7 million in the period increased $6.5 million, or 7.9%, from 2017 levels, and the operating margin of 25.9% improved 160 basis points from 24.3% a year ago.
Financial Services operating earnings of $57.8 million on revenue of $82.0 million in the quarter compared to operating earnings of $54.6 million on revenue of $77.7 million a year ago. Originations of $276.1 million in the second quarter increased $5.5 million, or 2.0%, from 2017 levels.
Corporate expenses of $23.6 million in the quarter compared to $22.2 million last year.
Snap-on expects to make continued progress in 2018 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 2018 will be in a range of $90 million to $100 million, of which $38.6 million was incurred in the first six months of the year. Snap-on currently anticipates that its full year 2018 effective income tax rate will be in a range of 24% to 25%.
Conference Call and Webcast on July 19, 2018, at 9:00 a.m. Central Time
A discussion of this release will be webcast on Thursday, July 19, 2018, 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.
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 facilitating comparisons of our sales performance with prior periods.
For the three and six months ended June 30, 2018, the company is including net earnings, diluted earnings per share and effective tax rate, all as adjusted to exclude the impact of a $0.5 million benefit and $2.1 million charge, respectively, related to newly issued guidance associated with the U.S. tax legislation. In addition, for the six months ended June 30, 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, both of which were incurred in the three months ended March 31, 2018. 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 2018 operating performance. For a reconciliation of the adjusted metrics, see “Reconciliation of Non-GAAP Financial Measures” below.
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.
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 30, 2017, which are incorporated herein by reference. As Snap-on further evaluates the effects of the new U.S. tax legislation, it may recognize further adjustments. Snap-on disclaims any responsibility to update any forward-looking statement provided in this news release, except as required by law.
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