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Professional tools and equipment manufacturer Snap-on (NYSE:SNA) met Wall Street’s revenue expectations in Q3 CY2024, but sales fell 8.5% year on year to $1.15 billion. Its GAAP profit of $4.70 per share was 2.5% above analysts’ consensus estimates.
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Snap-on (SNA) Q3 CY2024 Highlights:
- Revenue: $1.15 billion vs analyst estimates of $1.16 billion (in line)
- EPS: $4.70 vs analyst estimates of $4.58 (2.5% beat)
- "We believe that our markets and our operations possess and have demonstrated continuing and considerable resilience against the uncertainties of the current environment."
- Gross Margin (GAAP): 51.2%, in line with the same quarter last year
- Free Cash Flow Margin: 22.1%, up from 18% in the same quarter last year
- Organic Revenue fell 3.1% year on year (3.7% in the same quarter last year)
- Market Capitalization: $15.7 billion
Company OverviewFounded in 1920, Snap-on (NYSE:SNA) is a global provider of tools, equipment, and diagnostics for various industries such as vehicle repair, aerospace, and the military.
Professional Tools and Equipment
Automation that increases efficiency and connected equipment that collects analyzable data have been trending, creating new demand. Some professional tools and equipment companies also provide software to accompany measurement or automated machinery, adding a stream of recurring revenues to their businesses. On the other hand, professional tools and equipment companies are at the whim of economic cycles. Consumer spending and interest rates, for example, can greatly impact the industrial production that drives demand for these companies’ offerings.Sales Growth
Examining a company’s long-term performance can provide clues about its business quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Snap-on grew its sales at a sluggish 4.2% compounded annual growth rate. This shows it failed to expand in any major way and is a rough starting point for our analysis.We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Snap-on’s recent history shows its demand slowed as its annualized revenue growth of 2.2% over the last two years is below its five-year trend. We also note many other Professional Tools and Equipment businesses have faced declining sales because of cyclical headwinds. While Snap-on grew slower than we’d like, it did perform better than its peers.
Snap-on also reports organic revenue, which strips out one-time events like acquisitions and currency fluctuations because they don’t accurately reflect its fundamentals. Over the last two years, Snap-on’s organic revenue was flat. Because this number is lower than its normal revenue growth, we can see that some mixture of acquisitions and foreign exchange rates boosted its headline performance.
This quarter, Snap-on reported a rather uninspiring 8.5% year-on-year revenue decline to $1.15 billion of revenue, in line with Wall Street’s estimates.
Looking ahead, sell-side analysts expect revenue to decline 3% over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and indicates the market believes its products and services will face some demand challenges.
Operating Margin
Snap-on has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 24.5%. This result isn’t surprising as its high gross margin gives it a favorable starting point.Looking at the trend in its profitability, Snap-on’s annual operating margin rose by 3.6 percentage points over the last five years, showing its efficiency has improved.
This quarter, Snap-on generated an operating profit margin of 22%, down 3.1 percentage points year on year. Since Snap-on’s operating margin decreased more than its gross margin, we can assume it was recently less efficient because expenses such as marketing, R&D, and administrative overhead increased.
Earnings Per Share
Analyzing long-term revenue trends tells us about a company’s historical growth, but the long-term change in its earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.Snap-on’s EPS grew at a decent 9.3% compounded annual growth rate over the last five years, higher than its 4.2% annualized revenue growth. This tells us the company became more profitable as it expanded.
Diving into Snap-on’s quality of earnings can give us a better understanding of its performance. As we mentioned earlier, Snap-on’s operating margin declined this quarter but expanded by 3.6 percentage points over the last five years. Its share count also shrank by 4.1%, and these factors together are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.
Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business. For Snap-on, its two-year annual EPS growth of 8.4% is similar to its five-year trend, implying stable earnings power.
In Q3, Snap-on reported EPS at $4.70, up from $4.51 in the same quarter last year. This print beat analysts’ estimates by 2.5%. Over the next 12 months, Wall Street expects Snap-on’s full-year EPS of $19.42 to grow by 1.8%.