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 $2.05 billion; its shares were traded at around $35.55 with a P/E ratio of 11.1 and P/S ratio of 0.8. The dividend yield of Snapon Inc. stocks is 3.4%. 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 $265.4 million were down $72.7 million, or 21.5%, year over year. Excluding $14.4 million of unfavorable currency translation, organic sales in the Commercial & Industrial Group declined 17.2% year over year primarily due to the continued economic downturn, particularly as it has affected European sales. Sales in the Snap-on Tools Group of $246.6 million declined $22.9 million, or 8.5%, year over year. Excluding $3.9 million of unfavorable currency translation, organic sales in the Snap-on Tools Group declined 7.1% year over year. In the Diagnostics & Information Group, sales of $132.0 million were down $23.1 million, or 14.9%, from 2008 levels primarily due to lower essential tool and facilitation program sales to Original Equipment Manufacturer (OEM) dealerships. Excluding $3.6 million of unfavorable currency translation, organic sales in the Diagnostics & Information Group declined 12.6%.
Gross profit in the third quarter of 2009 was $260.5 million as compared to $312.2 million in 2008. The $51.7 million decline in year-over-year gross profit is primarily due to the lower sales volumes, costs to carry manufacturing capacity in light of lower demand and inventory reduction efforts, $11.6 million of unfavorable currency effects and $4.0 million of higher restructuring costs. These declines in gross profit were partially offset by $17.0 million of savings from ongoing efficiency and productivity (collectively Rapid Continuous Improvement or RCI) initiatives and other cost reduction activities, including benefits from restructuring and material cost reduction. Gross profit in the third quarter of 2009 included $3.5 million of LIFO-related inventory benefits as a result of lower inventory levels; gross profit in the third quarter of 2008 included $2.9 million of LIFO-related inventory expense. As a percentage of sales, gross profit margin of 44.8% in the third quarter of 2009 improved 10 basis points (100 basis points equals 1.0 percent) from 44.7% in the third quarter of 2008.
Operating expenses in the third quarter of 2009 were $206.5 million as compared to $230.6 million in 2008. In addition to lower volume-related expenses, the $24.1 million reduction in year-over-year operating expenses primarily resulted from $18.7 million of benefits from ongoing RCI, restructuring and other cost reduction initiatives, $6.1 million of currency translation, and $0.7 million of lower restructuring costs. These declines in operating expenses were partially offset by $3.0 million of higher pension expense primarily as a result of declines in pension asset values. As a percentage of net sales, operating expenses were 35.5% in the third quarter of 2009 as compared to 33.0% in 2008.
Operating loss from Financial Services was $5.3 million on revenue of $6.0 million in the third quarter of 2009 as compared with operating earnings of $4.8 million on revenue of $18.0 million in 2008. In the third quarter of 2009, loan originations of $127.0 million increased 2.2% from comparable 2008 levels. On July 16, 2009, Snap-on terminated the companys financial services joint venture agreement with CIT. Since July 16, 2009, Snap-on is providing financing for new contracts originated by SOC and SOC is recording the interest yield on the new on-balance-sheet finance portfolio over the life of the contracts as financial services revenue; previously, SOC sold new contract originations to CIT and recorded gains on the sale of the contracts as financial services revenue. The change from recognizing gains on contract sales to CIT to recognizing the interest yield on the on-balance-sheet finance portfolio primarily resulted in the year-over-year declines in both revenues and operating earnings. See Note 2 and Note 3 to the Condensed Consolidated Financial Statements for further information.
Consolidated operating earnings in the third quarter of 2009 of $48.7 million declined $37.7 million, or 43.6%, from the $86.4 million achieved in the third quarter of 2008. Unfavorable currency effects and higher restructuring costs contributed $5.8 million and $3.3 million, respectively, of the $37.7 million decrease in year-over-year operating earnings.
Interest expense of $12.8 million in the third quarter of 2009 was up $6.0 million from the prior year primarily due to higher debt levels as a result of the companys issuance of $300 million of fixed rate, long-term notes on February 24, 2009, and $250 million of fixed rate, long-term notes on August 14, 2009. See Note 8 to the Condensed Consolidated Financial Statements for information on the companys debt and credit facilities.
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