EUR 850.00 For Business Accounts Only

Morningstar | SNA Updated Star Rating from 18 Jul 2019

Despite softness in Europe, currency headwinds and delayed purchasing of big-ticket diagnostic tools globally, Snap-on’s first-quarter adjusted EPS of $3.22 slightly exceeded consensus of $3.21. Performance in the quarter demonstrated Snap-on’s ability to continuously innovate and deliver products that improve technician productivity. This strategy has pitfalls, however, as management conceded that its second-quarter earnings were constrained due to longer-than-anticipated sales cycles of sophisticated diagnostic tools. We believe that Snap-on’s high touch sales model will ultimately mitigate such issues, which are likely to grow more acute as both vehicles and tools used to repair them become more complex. Taking these factors into account and incorporating Snap-on’s second-quarter performance, we maintain our fair value estimate of $142.

In Snap-on’s Tools segment, revenue of $406 million was down 1.5% year over year as both a decline in organic sales and currency effects hit the top line. International sales were mixed as softness in the U.K. was offset by growing sales in India. Domestically, sales of diagnostic tools were impeded as some franchisees struggled with the long sales cycle.

The Repair Systems and Information segment generated revenue of $349 million in the quarter, representing modest 1.7% revenue growth year over year. Strong sales of Snap-on’s database offerings to OEM dealerships were offset by lackluster diagnostic equipment sales.

As with Snap-on’s other segments, Commercial & Industrial was buffeted by currency effects that caused revenue to decline 0.8% year over year to $335 million. However, organic revenue growth was a paltry 1.9%, which surprised us because Snap-on’s strong military sales and growth in India should have been largely incremental. Moreover, we believe that Snap-on’s latest offerings that improve technician productivity in critical industries should be strong sellers in the current low unemployment environment.

Snap-on’s strategy of fostering repair efficiency is consistent with our larger body of research that indicates end users are willing to invest in equipment to reduce future labor costs. In the second quarter, Snap-on introduced several innovative products that address the growing complexity of sensor-rich vehicles. One notable example was the release of its new calibration array for advanced driver assistance systems, or ADAS. This tool enables independent facilities to calibrate ADAS systems, which would typically be required after a collision repair, without visiting OEM dealerships. We believe that Snap-on will need to make ever larger investments in such tools to benefit from growing vehicle complexity in the near term before adoption of low-maintenance electric powertrains impacts its legacy business.