SnapOn Inc. Reports Operating Results (10-Q)
Snapon Inc. has a market cap of $2.83 billion; its shares were traded at around $48.79 with a P/E ratio of 19.7 and P/S ratio of 1.2. The dividend yield of Snapon Inc. stocks is 2.6%. Snapon Inc. had an annual average earning growth of 10% over the past 10 years.SNA is in the portfolios of Julian Robertson of Tiger Management, Pioneer Investments, John Keeley of Keeley Fund Management, Kenneth Fisher of Fisher Asset Management, LLC, Robert Olstein of Olstein Financial Alert Fund, Richard Aster Jr of Meridian Fund, George Soros of Soros Fund Management LLC, Chuck Royce of Royce& Associates.
Highlight of Business Operations: Net sales in the third quarter of 2010 of $653.1 million were up $71.3 million, or 12.3%, from 2009 levels; excluding $5.9 million of unfavorable currency translation, organic (excluding foreign currency effects) sales in the quarter increased 13.4% from 2009 levels. Snap-on has significant international operations and is subject to certain risks inherent with foreign operations, including currency translation fluctuations.
Gross profit in the third quarter of 2010 was $301.2 million as compared to $260.5 million in 2009. The $40.7 million gross profit increase is primarily due to higher sales, $4.0 million of savings from ongoing efficiency and productivity (collectively, Rapid Continuous Improvement or RCI) initiatives and other cost reduction activities, including benefits from restructuring actions, $2.7 million of favorable currency effects and $2.0 million of lower restructuring costs. The year-over-year gross profit comparison also benefited from favorable manufacturing utilization as a result of increased production levels; in the third quarter of 2009, the company incurred costs to carry excess manufacturing capacity, primarily in Europe, as a result of lower production and inventory reduction efforts. These gross profit increases were partially offset by $4.1 million of higher year-over-year last in, first out (LIFO) related inventory valuation expense. LIFO-related expense was $0.6 million in the third quarter of 2010; LIFO-related benefit of $3.5 million in the third quarter of 2009 primarily resulted from lower production and inventory reduction efforts. As a percentage of sales, gross margin of 46.1% in the third quarter of 2010 increased 130 basis points (100 basis points equals 1.0 percent) as compared to 44.8% in 2009.
Operating expenses in the third quarter of 2010 were $222.4 million as compared to $206.5 million in 2009. The $15.9 million increase in year-over-year operating expenses is primarily due to higher volume-related and other expenses, including higher costs as a result of increased participation at the annual Snap-on Franchisee Conference, and higher costs associated with the development of a new and expanded product catalog that was deferred from 2009 into 2010. The year-over-year operating expense increase also included $4.1 million of higher pension expense, largely due to lower than projected asset returns in previous years related to the U.S. pension plan, and $1.2 million of higher stock-based (mark-to-market) expense. These increases were partially offset by $1.7 million of lower bad debt expense, $1.7 million of favorable currency translation effects, $1.2 million of benefits from ongoing RCI and restructuring initiatives and $0.6 million of lower restructuring costs. As a percentage of sales, operating expenses in the third quarter of 2010 improved 150 basis points to 34.0% as compared to 35.5% in 2009.
Operating income from Financial Services was $5.0 million on revenue of $17.2 million in the third quarter of 2010, as compared with $5.3 million of operating loss on revenue of $6.0 million in 2009. The year-over-year increase in both revenue and operating earnings primarily reflects the growth in Snap-on Credit LLCs (SOC) on-book finance portfolio. On July 16, 2009, Snap-on terminated its financial services operating agreement with CIT Group Inc. (CIT) relating to the parties SOC financial services joint venture, and subsequently purchased CITs 50%-ownership interest in the joint venture for $8.1 million pursuant to the terms of the joint venture agreement. Since July 16, 2009, Snap-on is providing financing for the majority of new loans originated by SOC and SOC is recording the interest yield on the new on-book finance portfolio over the life of the contracts as financial services revenue. Prior to July 16, 2009, SOC sold substantially all new contract originations to CIT and recorded gains on the sale of the contracts as financial services revenue. See Notes 1, 2 and 3 to the Condensed Consolidated Financial Statements for further information on SOC.
Consolidated operating earnings in the third quarter of 2010 of $83.8 million increased $35.1 million, or 72.1%, from the $48.7 million achieved in the third quarter of 2009, including $10.3 million of higher year-over-year operating earnings from financial services and $4.4 million of favorable currency effects. As a percentage of revenues (net sales plus financial services revenue), operating earnings in the third quarter of 2010 improved 420 basis points to 12.5% as compared to 8.3% last year.
Net earnings attributable to Snap-on in the third quarter of 2010 were $46.5 million, or $0.80 per diluted share, as compared with $25.4 million, or $0.44 per diluted share, in the third quarter of 2009.
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