KENOSHA, Wis. - (BUSINESS WIRE) - July 31, 2020 - Snap-on Incorporated (NYSE: SNA), 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 second quarter of 2020.
See “Non-GAAP Measures” below for a definition of, and further explanation about, organic sales and measures, as adjusted, excluding the restructuring charges.
“Throughout the second quarter, our sales and earnings were adversely impacted by the COVID-19 pandemic,” said Nick Pinchuk, Snap-on chairman and chief executive officer. “We believe the effects of the virus can be represented in three phases: shock, or the significant stress associated with the early days; accommodation, or the gradual improvement reflecting the development of tactics to proceed safely in the COVID-19 environment; and finally, psychological recovery, or the restoration of confidence in the future. In fact, we encountered that trend as we moved from the shock of April to the accommodation reflected by the narrowing sales declines of May and June. During these times of turbulence, we continue to prioritize the health, safety and well-being of our associates, franchisees, customers and communities as we engage in our essential work. At the same time, we endeavor to strengthen our powerful product lines, reinforce our extraordinary brands, and maintain our capable team, preserving these advantages to pursue the abundant opportunities we believe will be available as the virus clears. Finally, and especially in the current situation, I want to thank our franchisees and associates worldwide for their many contributions, continued dedication, and belief in our future.”
Segment Results
Commercial & Industrial Group segment net sales of $261.9 million in the quarter compared to $335.0 million last year, reflecting a $66.2 million, or 20.2%, organic sales decline and $6.9 million of unfavorable foreign currency translation. The organic decrease includes mid-teen declines in sales to customers in critical industries and in the power tools operation.
Operating earnings of $22.9 million in the period, including $3.0 million of COVID-19-related costs, $2.0 million of restructuring costs and $1.9 million of unfavorable foreign currency effects, compared to $48.9 million in 2019. The operating margin (operating earnings as a percentage of segment net sales) of 8.7% decreased from 14.6% a year ago, primarily reflecting the effects of the decreased sales volumes and lower utilization of manufacturing capacity, as well as 120 bps of COVID-19-related costs, 80 bps of restructuring charges and 50 bps of unfavorable foreign currency effects.
Snap-on Tools Group segment net sales of $323.3 million in the quarter compared to $405.8 million last year, reflecting a $79.2 million, or 19.7%, organic sales decline and $3.3 million of unfavorable foreign currency translation. The organic sales decrease includes a mid-teen decline in the United States and a nearly 40% decline in the segment’s international operations.
Operating earnings of $38.4 million in the period, including $1.9 million of COVID-19-related costs, $0.6 million of restructuring charges and $1.1 million of unfavorable foreign currency effects, compared to $71.3 million in 2019. The operating margin of 11.9% decreased from 17.6% a year ago, primarily due to the lower sales volumes and costs to maintain manufacturing capacity, as well as 60 bps of COVID-19-related costs, 20 bps of restructuring charges and 20 bps of unfavorable foreign currency effects.
Repair Systems & Information Group segment net sales of $245.0 million in the quarter compared to $348.9 million last year, reflecting a $101.4 million, or 29.5%, organic sales decrease, $4.8 million of unfavorable foreign currency translation, and $2.3 million of acquisition-related sales. The organic decrease includes declines of over 30% in both sales of undercar equipment and to OEM dealerships, as well as a mid-teen decrease in sales of diagnostic and repair information products to independent repair shop owners and managers.
Operating earnings of $50.6 million in the period, including $1.4 million of restructuring charges, $0.7 million of COVID-19-related costs and $0.8 million of unfavorable foreign currency effects, compared to $88.6 million in 2019. The operating margin of 20.7% decreased from 25.4% a year ago, primarily reflecting the effects of the lower sales volume, as well as 50 bps of restructuring charges and 20 bps of COVID-19-related costs.
Financial Services operating earnings of $57.6 million on revenue of $84.6 million in the quarter compared to operating earnings of $60.6 million on revenue of $84.1 million a year ago. In the second quarter of 2020, financial services operating earnings reflected higher provisions for credit losses as compared to the prior year, which included lower provisions as a result of non-recurring favorable loss experience in the second quarter of 2019. Originations of $255.8 million in the second quarter decreased $7.6 million, or 2.9%, from 2019 levels.
Corporate expenses of $20.8 million in the second quarter of 2020 compared to $18.9 million last year.
Outlook
COVID-19 has spread across the globe during 2020 and is impacting economic activity worldwide. Snap-on experienced improving trends in the second quarter as our operations learned to accommodate the risks and safely pursue opportunities in the COVID-19 environment. In the near term, the company believes there will be continued sequential improvements, reflecting increasing levels of accommodations to the virus-related turbulence, though it cannot provide assurances on the rate of progress due to the uncertain and evolving nature and duration of the pandemic.
Snap-on is responding to the global macroeconomic challenges by deepening its Rapid Continuous Improvement (RCI), sourcing and other cost reduction initiatives. Snap-on recorded $4.0 million and $11.5 million of costs related to restructuring actions in the second quarter and first six months of 2020, respectively. Snap-on will continue to manage its cash flows and balance its capital allocation priorities, including investments and the need for further cost reduction actions; the COVID-19 pandemic makes it difficult to presently predict this balance as the company continually adjusts to the changing environment. Snap-on expects that capital expenditures in 2020 will be in a range of $75 million to $85 million, of which $29.0 million was incurred in the first six months of the year.
Despite near term uncertainty, Snap-on expects to maintain focus on 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.
Snap-on currently anticipates that its full year 2020 effective income tax rate will be in the range of 23% to 25%.
Conference Call and Webcast on July 31, 2020, at 9:00 a.m. Central Time
A discussion of this release will be webcast on Friday, July 31, 2020, at 9:00 a.m. Central Time, and a replay will be available for at least 10 days following the call. To access the webcast, visit Snap-on's investor website 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.
Non-GAAP Measures
References in this document to “organic sales” refer to sales from continuing operations calculated in accordance with generally accepted accounting principles in the United States (“GAAP”), adjusted to exclude acquisition-related sales and the impact of foreign currency translation. Management evaluates the company’s sales performance based on organic sales growth, which primarily reflects growth from the company’s existing businesses as a result of increased output, customer base and geographic expansion, new product development and/or pricing, and excludes sales contributions from acquired operations the company did not own as of the comparable prior-year reporting period. The company’s organic sales disclosures also exclude the effects of foreign currency translation as foreign currency translation is subject to volatility that can obscure underlying business trends. Management believes that the non-GAAP financial measure of organic sales is meaningful to investors as it provides them with useful information to aid in identifying underlying growth trends in our businesses and facilitates comparisons of our sales performance with prior periods.
For the second quarter of 2020, the company is including operating earnings before financial services, consolidated operating earnings, net earnings, diluted earnings per share and its effective tax rate, all as adjusted to exclude the impact of $4.0 million of restructuring charges ($3.3 million after tax) for exit and disposal activities.
For the six months ended June 27, 2020, the company is including operating earnings before financial services, consolidated operating earnings, net earnings, diluted earnings per share and its effective tax rate, all as adjusted to exclude the impact of $11.5 million of restructuring charges ($9.3 million after tax) for exit and disposal activities.
For the six months ended June 29, 2019, the company is including operating earnings before financial services, consolidated operating earnings, net earnings and diluted earnings per share, all as adjusted to exclude the impact of an $11.6 million benefit ($8.7 million after tax) from a legal settlement that occurred in the three months ended March 30, 2019.
Management believes that these are unusual events and therefore the non-GAAP financial measures adjusted to exclude them provide more meaningful year-over-year comparisons of the company’s 2020 operating performance. For a reconciliation of the adjusted metrics, see “Reconciliation of Non-GAAP Financial Measures” below.
Snap-on Incorporated is a leading global innovator, manufacturer and marketer of tools, equipment, diagnostics, repair information and systems solutions for professional users performing critical tasks. Products and services include hand and power tools, tool storage, diagnostics software, information and management systems, shop equipment and other solutions for vehicle dealerships and repair centers, as well as for customers in industries, including aviation and aerospace, agriculture, construction, government and military, mining, natural resources, power generation and technical education. Snap-on also derives income from various financing programs to facilitate the sales of its products and support its franchise business. Products and services are sold through the company’s franchisee, company-direct, distributor and internet channels. Founded in 1920, Snap-on is a $3.7 billion, S&P 500 company headquartered in Kenosha, Wisconsin.
Forward-looking Statements
Statements in this news release that are not historical facts, including statements that (i) are in the future tense; (ii) include the words “expects,” “anticipates,” “intends,” “approximates,” or similar words that reference Snap-on or its management; (iii) are specifically identified as forward-looking; or (iv) describe Snap-on’s or management’s future outlook, plans, estimates, objectives or goals, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Snap-on cautions the reader that this news release may contain statements, including earnings projections, that are forward-looking in nature and were developed by management in good faith and, accordingly, are subject to risks and uncertainties regarding Snap-on’s expected results that could cause (and in some cases have caused) actual results to differ materially from those described or contemplated in any forward-looking statement. Factors that may cause the company’s actual results to differ materially from those contained in the forward-looking statements include those found in the company’s reports filed with the Securities and Exchange Commission, including the information under the “Safe Harbor” and “Risk Factors” headings in its Annual Report on Form 10-K for the fiscal year ended December 28, 2019 and any Quarterly Reports on Form 10-Q, which all are incorporated herein by reference. Snap-on disclaims any responsibility to update any forward-looking statement provided in this news release, except as required by law.
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Non-GAAP Supplemental Data
The following non-GAAP supplemental data is presented for informational purposes to provide readers with insight into the information used by management for assessing the operating performance of Snap-on Incorporated's ("Snap-on") non-financial services ("Operations") and "Financial Services" businesses.
The supplemental Operations data reflects the results of operations and financial position of Snap-on's tools, diagnostic and equipment products, software and other non-financial services operations with Financial Services on the equity method. The supplemental Financial Services data reflects the results of operations and financial position of Snap-on's U.S. and international financial services operations. The financing needs of Financial Services are met through intersegment borrowings and cash generated from Operations; Financial Services is charged interest expense on intersegment borrowings at market rates. Income taxes are charged to Financial Services on the basis of the specific tax attributes generated by the U.S. and international financial services businesses. Transactions between the Operations and Financial Services businesses were eliminated to arrive at the Condensed Consolidated Financial Statements.
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Source: Snap-on Incorporated
Snap-on Incorporated is a leading global innovator, manufacturer and marketer of tools, equipment, diagnostics, repair information and systems solutions for professional users performing critical tasks.