Snap-on Incorporated, 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 first quarter of 2019.
- Net sales of $921.7 million in the quarter decreased $13.8 million, or 1.5%, from 2018 levels; reflecting a $12.3 million, or 1.4%, organic sales increase, more than offset by $26.1 million of unfavorable foreign currency translation.
- Operating earnings before financial services in the quarter of $187.4 million, or 20.3% of sales, included an $11.6 million benefit from the settlement of a patent-related litigation matter that was being appealed (the “legal settlement”) and $5.7 million of unfavorable foreign currency effects, compared to $177.7 million, or 19.0% of sales, last year. Excluding the legal settlement, operating earnings before financial services, as adjusted, in the first quarter of 2019 were $175.8 million, or 19.1% of sales.
- Financial services revenue in the quarter of $85.6 million increased $2.6 million from 2018 levels; financial services operating earnings of $62.1 million increased $5.2 million from $56.9 million last year.
- Consolidated operating earnings in the quarter of $249.5 million, or 24.8% of revenues (net sales plus financial services revenue), compared to $234.6 million, or 23.0% of revenues, last year. Excluding the legal settlement, consolidated operating earnings, as adjusted, in the first quarter of 2019 were $237.9 million, or 23.6% of revenues.
- Other income (expense) – net in the quarter of $1.5 million of income compares to $2.8 million of income in 2018, which included a net gain of $5.5 million related to the issuance and extinguishment of debt (the “net debt items”).
- The first quarter 2019 effective income tax rate of 24.3% was increased by 10 basis points from the legal settlement. The first quarter 2018 effective income tax rate of 26.2% was increased by 120 basis points as a result of a $2.6 million charge related to the implementation of U.S. tax legislation (the “tax charge”). Excluding the tax charge in 2018, the effective tax rate, as adjusted, was 25.0%.
- Reported net earnings in the first quarter of 2019 of $177.9 million, or $3.16 per diluted share, compared to $163.0 million, or $2.82 per diluted share, a year ago. Excluding the legal settlement in 2019, and the net debt items and tax charge in 2018, net earnings, as adjusted, were $169.2 million, or $3.01 per diluted share, in 2019, and $161.5 million, or $2.79 per diluted share, last year.
“We are encouraged by our first quarter 2019 results, which included a continuing recovery in our U.S. franchise network, with a mid single-digit sales gain in that operation,” said Nick Pinchuk, Snap-on chairman and chief executive officer. “Our advancements in the quarter, despite uncertainty in several geographies, demonstrated progress along our runways for growth and reflects the strength of Snap-on’s value proposition of making work easier for serious professionals in both critical industries and vehicle repair. At the same time, year-over-year growth in earnings per diluted share reflects the ongoing effectiveness of our Snap-on Value Creation Processes and the opportunities available in our end markets. Finally, our progress would not have been possible without the dedication and capability of our franchisees and associates, and I thank them for their commitment and their contributions.”
Commercial & Industrial Group segment sales of $322.5 million in the quarter decreased $9.1 million, or 2.7%, from 2018 levels, reflecting a $4.7 million, or 1.5%, organic sales gain, more than offset by $13.8 million of unfavorable foreign currency translation. The organic sales increase includes higher sales in the segment’s specialty tools business, as well as increases with customers in critical industries, partially offset by lower sales in the segment’s Asia Pacific operations.
Operating earnings of $46.5 million in the period, including $1.1 million of unfavorable foreign currency effects, were unchanged from 2018 levels, while the operating margin (operating earnings as a percentage of segment sales) of 14.4% compared to 14.0% a year ago.
Snap-on Tools Group segment sales of $410.2 million in the quarter increased $5.5 million, or 1.4%, from 2018 levels, reflecting an $11.7 million, or 2.9%, organic sales increase, partially offset by $6.2 million of unfavorable foreign currency translation. The organic sales increase includes higher sales in the U.S. franchise operations, partially offset by a decrease in the segment’s international operations.
Operating earnings of $67.2 million in the period, including $3.1 million of unfavorable foreign currency effects, decreased $1.7 million from 2018 levels, and the operating margin of 16.4% compared to 17.0% last year.
Repair Systems & Information Group segment sales of $327.9 million in the quarter decreased $9.1 million, or 2.7%, from 2018 levels, reflecting a $1.5 million, or 0.5%, organic sales decline and $7.6 million of unfavorable foreign currency translation. The organic sales decrease reflects lower sales of undercar equipment, partially offset by higher sales to OEM dealerships.
Operating earnings of $83.6 million in the period, including $1.5 million of unfavorable foreign currency effects, decreased $2.2 million from 2018 levels, while the operating margin of 25.5% was unchanged from a year ago.
Financial Services operating earnings of $62.1 million on revenue of $85.6 million in the quarter compared to operating earnings of $56.9 million on revenue of $83.0 million a year ago. Originations of $252.5 million in the first quarter increased $5.2 million, or 2.1%, from 2018 levels.
Corporate expenses of $9.9 million in the quarter, including the $11.6 million benefit from the legal settlement, compared to $23.5 million last year.
Snap-on expects to make continued progress in 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 $90 million to $100 million, of which $20.2 million was incurred in the first quarter.
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%.
At the beginning of fiscal 2019, Snap-on adopted ASU No. 2016-02, Leases (Topic 842). The adoption did not have a significant impact on the company’s consolidated financial statements. The adoption resulted in the recognition of right-of-use assets and lease liabilities for operating leases in the Condensed Consolidated Balance Sheets of $60.5 million, while accounting for finance leases and lessor accounting remained substantially unchanged. The adoption did not have any impact on the Condensed Consolidated Statement of Earnings.
Conference Call and Webcast access
A discussion of this release was webcast on Thursday, April 18, 2019, at 9:00 a.m. Central Time; 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.
This is great development since notably, the company delivered a positive earnings surprise in three of the trailing four quarters, the average beat being 2.2%.