SnapOn Inc. Reports Operating Results (10-Q)
Snap-On Incorporated is engaged in the business of providing productivity-enhancing innovative products services and solutions. Snap-on is a global developer manufacturer and marketer of professional tools diagnostics equipment and related services marketed in numerous countries. Snap-on offers a wide range of capabilities and solutions for professional tool users in vehicle service industrial and other commercial applications worldwide. SnapOn Inc. has a market cap of $1.95 billion; its shares were traded at around $33.92 with a P/E ratio of 9.1 and P/S ratio of 0.7. The dividend yield of SnapOn Inc. stocks is 3.5%. SnapOn Inc. had an annual average earning growth of 13.1% over the past 10 years. GuruFocus rated SnapOn Inc. the business predictability rank of 2-star. Highlight of Business Operations: Sales in the Commercial & Industrial Group of $259.8 million were down $96.9 million, or 27.2%, year over year. Excluding $33.6 million of unfavorable currency translation, organic sales in the Commercial & Industrial Group declined 17.7% year-over-year primarily due to continued lower sales of professional tools in Europe and lower sales of equipment worldwide. Sales in the Snap-on Tools Group of $242.4 million were down $46.9 million, or 16.2%, year over year primarily due to the continued challenging sales environment, particularly for sales of higher-price items. Excluding $15.9 million of unfavorable currency translation, organic sales in the Snap-on Tools Group declined 10.7%
Gross profit in the first quarter of 2009 was $258.7 million as compared to $325.9 million in 2008. The $67.2 million decline in year-over-year gross profit is primarily due to lower sales volumes, including the costs to carry manufacturing capacity in light of production slowdowns, and $26.2 million of unfavorable currency effects. These year-over-year declines in gross profit were partially offset by $7.3 million of savings from efficiency, productivity and cost reduction (collectively Rapid Continuous Improvement or RCI) initiatives, contributions from price increases taken in 2008, and $1.0 million of lower restructuring costs. As a percentage of sales, gross profit was 45.2% in both the first quarters of 2009 and 2008.
Operating expenses in the first quarter of 2009 were $204.4 million, as compared to $245.5 million in 2008. In addition to lower volume-related and other expenses, the $41.1 million reduction in year-over-year operating expenses primarily resulted from $16.0 million of currency translation, $10.9 million of benefits from ongoing RCI initiatives, and lower performance-based and stock-based compensation expense, as well as $1.9 million of lower restructuring costs. As a percentage of net sales, operating expenses were 35.7% in the first quarter of 2009, as compared to 34.0% in 2008.
Consolidated operating earnings in the first quarter of 2009 of $64.3 million were down $28.9 million, or 31.0%, from the $93.2 million achieved in the first quarter of 2008. Unfavorable currency effects contributed $11.0 million of the $28.9 million decrease in year-over-year operating earnings.
On March 5, 2008, Snap-on acquired a 60% interest in Zhejiang Wanda Tools Co., Ltd. (Wanda Snap-on), a tool manufacturer in China, for a preliminary cash purchase price of $14.7 million (or $13.4 million, net of cash acquired), including $1.1 million of transaction costs. Subsequent to March 5, 2008, Snap-on completed its purchase accounting related to the Wanda Snap-on acquisition for a total purchase price of $15.4 million (or $14.1 million, net of cash acquired), including $1.2 million of transaction costs. The acquisition of Wanda Snap-on is part of the companys ongoing strategic initiatives to further expand its manufacturing presence in emerging growth markets and lower-cost regions. For segment reporting purposes, the results of Wanda Snap-on, which have been included in Snap-ons consolidated financial statements since the date of acquisition, are included in the Commercial & Industrial Group. The net sales and operating earnings impact of the acquisition were not material to Snap-ons first quarter 2008 or 2009 results of operations or financial position.
Segment gross profit of $92.1 million in the first quarter of 2009 was down $40.8 million, or 180 basis points (100 basis points equals 1.0 percent) from 2008 levels. The $40.8 million decline in year-over-year gross profit is primarily due to the lower sales volumes, including the costs to carry manufacturing capacity in light of production slowdowns, $13.4 million of unfavorable currency impacts, and $2.8 million of higher production and material costs. These declines in year-over-year gross profit were partially offset by benefits from price increases taken in 2008 and $3.7 million of savings from ongoing RCI initiatives. Operating expenses of $74.1 million in the quarter were down $20.6 million from 2008 levels primarily due to $9.5 million of currency translation, lower volume-related and other expenses, and $2.9 million of savings from ongoing RCI initiatives. Restructuring costs in the first quarter of 2009 totaled $1.3 million as compared to $1.4 million in the first quarter of 2008. As a result of these factors, segment operating earnings in the first quarter of 2009 declined $20.2 million from 2008 levels and, as a percentage of net sales, declined from 10.7% in 2008 to 6.9% in 2009. The $20.2 million decrease in year-over-year operating earnings includes $2.4 million of unfavorable currency impacts.
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