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Strong Auto Repair Sector Bolsters Snap-on’s Q4 Results

Boosted by a strong automotive repair sector, Snap-on Inc. reported increased net sales and net income for the fourth quarter of 2012. Earnings rose 13.9 percent to $84.60 million, while sales rose 2.3 percent to $753.20 million. Excluding $1.90 million in unfavorable foreign currency translation, organic sales were up 2.5 percent —somewhat less than in prior quarters, largely reflecting weak military sales.

Snap-on’s sales increase came from continued higher business in the Snap-on Tools Group and in the emerging markets of Asia, along with higher sales of diagnostic and repair information products. This more than offset lower sales in the military arena due to the Fiscal Cliff and the potential of sequestration, as well as continued weakness in Europe.

The Snap-on Tools Group saw sales increase 9.8 percent to $321.60 million. Excluding $1.40 million in favorable foreign currency translation, organic sales grew 9.3 percent reflecting high-single-digit sales gains across both the U.S. and international franchise operations.

Nick Pinchuk, Snap-on chairman and CEO, told analysts on a Feb. 7 conference call that enhancing the van channel has been a primary focus for quite some time, and that focus — along with the associated investments Snap-on has made — has driven results.

“Clearly, one of the big advantages is our wholly-owned financial services company, Snap-on Credit. … By working closely with the Tools Group, our financial arm has been instrumental in helping drive the van sales increases we saw throughout 2012,” he said. “We have had a string of gains in big-ticket items, and much of that activity is enabled by Snap-on Credit.”

Beyond the financial results, Pinchuk said there is other evidence of progress. “I often mention the internal metrics we track related to franchisee health. They’ve been on a positive trajectory for some time. That’s more confirmation of a strengthening network,” he said on the call. “And we’ve also seen external validation of our improved position in the network.

Entrepreneur Magazine recently published a ranking of top franchises, with a focus on financial strength and stability, growth rate, and the size of the system. We’ve moved up, with Snap-on coming in at No. 26 out of the Top 500 franchises. Also in the quarter, Franchise Direct listed Snap-on as No. 11 in its 2012 Top 100 global franchise ranking. And finally, Franchise Business Review, a leading research firm in franchising, ranked us among the Top 100 opportunities for veterans. We like that.

“I’ll just add that, in each of these listings, Snap-on ranks ahead of all tool franchise systems.”

Tools Group operating earnings rose 15.2 percent to $45.60 million. Operating margin improved from 13.5 percent a year ago to 14.2 percent for the fourth quarter of 2012.

Meanwhile, the Snap-on Repair Systems & Information Group saw its operating earnings rise 12.6 percent to $55.40 million in the fourth quarter of 2012. Operating margin grew from 20.8 percent to 22.9 percent. Sales increased 2.2 percent to $241.60 million.

Excluding $1.60 million in unfavorable foreign currency translation, organic sales were up 2.9 percent. This was primarily because of low-single-digit gains in sales of diagnostic and repair information products to repair shop owners and managers, as well as sales to OEM dealerships.

Pinchuk told analysts on the call that the general weakness in Western Europe continues to have an impact on the Repair Systems & Information Group because it has a significant undercar equipment business in that region. “But importantly, we saw more progress with strong gains for our undercar equipment lineup in the emerging Eastern European and Brazilian markets,” he said. “We continued the upward trend in selling repair information and diagnostics products to independent shop owners and managers, while, at the same time, our activity in the businesses that primarily serve OEM dealerships posted increases in essential diagnostics and tools programs. For RS&I, all of these widespread positives more than offset the challenges of Europe and undercar equipment.”                        — Marc Vincent

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