Snap-on Announces Fourth Quarter and Full Year 2020 Results

Rhea-AI Summary

Snap-on reported a strong fourth quarter and full year 2020 performance despite the COVID-19 pandemic. Fourth quarter net sales were $1,074.4 million, a 12.5% increase year-over-year, driven by organic sales growth of 10.6%. Operating earnings before financial services increased to $216.2 million, or 20.1% of sales. However, full-year net sales declined by 3.7% to $3,592.5 million, primarily due to decreased activity earlier in the year. Net earnings for the fourth quarter were $208.9 million or $3.82 per diluted share. The company anticipates capital expenditures of $90-100 million in 2021.

Positive

• Fourth quarter net sales increased by 12.5%, reaching $1,074.4 million.
• Operating earnings before financial services rose to $216.2 million, a 20.1% margin.
• Organic sales growth in the fourth quarter was 10.6%, showcasing resilience.

Negative

• Full year net sales declined by 3.7% to $3,592.5 million.
• Net earnings for the year fell to $627.0 million from $693.5 million in 2019.

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 2020 operating results for the fourth quarter and full year.

• Net sales of $1,074.4 million in the fourth quarter of 2020 increased $119.2 million, or 12.5% from 2019 levels, reflecting a $102.1 million, or 10.6%, organic sales gain, $9.6 million of favorable foreign currency translation, and $7.5 million of acquisition-related sales.
  
  
• Operating earnings before financial services for the quarter of $216.2 million, or 20.1% of sales, including the impacts from $2.8 million of direct costs associated with COVID-19, $1.5 million of unfavorable currency effects and $1.0 million of exit and disposal costs for actions outside of the United States (“restructuring charges”), compared to $171.4 million, or 17.9% of sales in 2019. Excluding the restructuring charges, operating earnings before financial services in 2020, as adjusted, of $217.2 million, or 20.2% of sales, increased $45.8 million, or 26.7%, from 2019 levels.
  
  
• Financial services revenue in the quarter of $93.4 million increased $9.5 million from 2019 levels; financial services operating earnings of $68.5 million compared to $62.2 million last year.
  
  
• Consolidated operating earnings for the quarter of $284.7 million, including $2.8 million of direct costs associated with COVID-19, $1.3 million of unfavorable currency effects and $1.0 million of restructuring charges, compared to $233.6 million last year. As a percentage of revenues (net sales plus financial services revenue), consolidated operating earnings were 24.4% and 22.5% in the fourth quarters of 2020 and 2019, respectively. Excluding the restructuring charges, consolidated operating earnings in 2020, as adjusted, of $285.7 million, or 24.5% of revenues, increased $52.1 million, or 22.3%, from 2019 levels.
  
  
• The fourth quarter effective income tax rate was 21.8% in 2020 and 22.3% in 2019.
  
  
• Net earnings in the quarter of $208.9 million, or $3.82 per diluted share, compared to $170.6 million, or $3.08 per diluted share, a year ago. Excluding the restructuring charges, net earnings, as adjusted, were $209.9 million in 2020, or $3.84 per diluted share.
  
  
• Full year net sales of $3,592.5 million decreased $137.5 million, or 3.7%, from 2019 levels, reflecting a $140.9 million, or 3.8%, organic sales decline and $10.9 million of unfavorable foreign currency translation, partially offset by $14.3 million of acquisition-related sales. The lower sales volume is primarily due to decreased activity in the first half of the year as a result of the initial shock associated with the COVID-19 pandemic. Full year net earnings of $627.0 million, or $11.44 per diluted share, compared to net earnings of $693.5 million, or $12.41 per diluted share, last year. In 2020, excluding restructuring charges, net earnings, as adjusted, were $637.3 million. In 2019, excluding a legal settlement related to a litigation matter that was being appealed (the “legal settlement”), net earnings, as adjusted, were $684.8 million. Earnings per diluted share, as adjusted, of $11.63 in 2020, decreased 5.1% as compared to earnings per diluted share, as adjusted, of $12.26 last year.

See “Non-GAAP Measures” below for a definition of, and further explanation about, organic sales and measures, as adjusted, excluding the restructuring charges and the legal settlement.

“Our fourth quarter was another encouraging period in which Snap-on continued its upward trajectory, extending to new heights in both sales and earnings . . . achieved directly against a disruption of historic proportion . . . all while prioritizing the health and safety of our constituents,” said Nick Pinchuk, Snap-on chairman and chief executive officer. “We believe our performance clearly confirms the continuing and abundant opportunities along our runways for growth and improvement, demonstrates the strength inherent in our operations, and testifies to the resilience of our enterprise, supported by our franchise network, by our capacity for critical innovation, and by our deep connection with makers and fixers. We’re further heartened that the gains were achieved in the challenging COVID environment, while still expanding our special advantage in our products, in our brands, and in our people. Those elevated capabilities enabled us to reach higher in the quarter and will serve as an effective base for attaining increased progress as we move forward through 2021. Finally, I want to celebrate our franchisees, our associates, and our customers who have labored at their essential tasks, especially in repair shops, in warehouses, and in factories. Their dedication and hard work have helped preserve our society during the time of the virus . . . an effort that will be remembered for years to come.”

Segment Results - Fourth Quarter

Commercial & Industrial Group segment sales of $364.4 million in the quarter increased $11.5 million, or 3.3%, from 2019 levels, including $7.5 million of acquisition-related sales and $6.5 million of favorable foreign currency translation, partially offset by a $2.5 million, or 0.7%, organic decline. This decrease includes lower activity with customers in the critical industries and in the segment’s Asia Pacific operations, partially offset by higher volumes in the segment’s European-based hand tools business.

Operating earnings of $56.2 million in the period, including $1.0 million of COVID-19-related costs and $1.3 million of unfavorable foreign currency effects, compared to $45.0 million in 2019. The operating margin (operating earnings as a percentage of segment sales) of 15.4% compared to 12.8% a year ago.

Snap-on Tools Group segment sales of $494.9 million in the quarter increased $83.2 million, or 20.2%, from 2019 levels, reflecting an $81.0 million, or 19.6%, organic gain and $2.2 million of favorable foreign currency translation. The organic increase reflects higher activity in both the segment’s U.S. and international operations.

Operating earnings of $93.6 million in the period, including $1.2 million of COVID-19-related costs, increased $39.3 million from 2019 levels, and the operating margin of 18.9% compared to 13.2% last year.

Repair Systems & Information Group segment sales of $361.1 million in the quarter increased $26.1 million, or 7.8%, from 2019 levels, reflecting a $23.7 million, or 7.0%, organic increase and $2.4 million of favorable foreign currency translation. The organic gain includes higher activity with OEM dealerships and increased sales of diagnostics and repair information products to independent repair shop owners and managers, partially offset by lower volumes of undercar equipment.

Operating earnings of $90.0 million in the period, including $1.0 million of restructuring charges, $0.2 million of COVID-19-related costs and $0.2 million of unfavorable foreign currency effects, compared to $87.2 million in 2019, while the operating margin of 24.9% compared to 26.0% a year ago.

Financial Services operating earnings of $68.5 million on revenue of $93.4 million in the quarter compared to operating earnings of $62.2 million on revenue of $83.9 million a year ago. Originations of $272.4 million in the fourth quarter increased $10.0 million, or 3.8%, from 2019 levels.

Corporate expenses of $23.6 million in the quarter compared to $15.1 million last year.

Outlook

COVID-19 spread across the globe during 2020 and continues to impact economic activity worldwide into 2021. Snap-on is accommodating to the related risks while safely pursuing opportunities in the COVID-19 environment. In 2021, the company believes there will be ongoing advancement against the virus-related turbulence, and that the trajectory of progress may be uncertain due to the evolving nature and duration of the pandemic.

Snap-on does expect to make progress in 2021 along 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. In pursuit of these initiatives, it is projected that capital expenditures in 2021 will be in a range of $90 million to $100 million. Snap-on continues to respond to the global macroeconomic challenges through its Rapid Continuous Improvement (RCI) process and other cost reduction initiatives.

Snap-on currently anticipates that its full year 2021 effective income tax rate will be in the range of 23% to 24%.

Conference Call and Webcast on February 4, 2021, at 9:00 a.m. Central Time

A discussion of this release will be webcast on Thursday, February 4, 2021, 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 https://www.snapon.com/EN/Investors/Investor-Events 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 at https://www.snapon.com/EN/Investors/Financial-Information/Quarterly-Earnings.

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 fourth 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 $1.0 million of restructuring charges ($1.0 million after tax) for exit and disposal activities.

For the full year 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 $12.5 million of restructuring charges ($10.3 million after tax) for exit and disposal activities, which occurred in the first, second and fourth quarters of fiscal 2020.

For the full year 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 the legal settlement, which occurred in the first quarter of fiscal 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.

About Snap-on

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 $3.6 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.

SNAP-ON INCORPORATED Condensed Consolidated Statements of Earnings (Amounts in millions, except per share data) (unaudited)
	Fourth Quarter								Full Year
	2020				2019				2020				2019
Net sales	$	1,074.4			$	955.2			$	3,592.5			$	3,730.0
Cost of goods sold	(558.2)				(504.7)				(1,844.0)				(1,886.0)
Gross profit	516.2				450.5				1,748.5				1,844.0
Operating expenses	(300.0)				(279.1)				(1,116.6)				(1,127.6)
Operating earnings before financial services	216.2				171.4				631.9				716.4
Financial services revenue	93.4				83.9				349.7				337.7
Financial services expenses	(24.9)				(21.7)				(101.1)				(91.8)
Operating earnings from financial services	68.5				62.2				248.6				245.9
Operating earnings	284.7				233.6				880.5				962.3
Interest expense	(15.4)

FAQ

What were Snap-on's fourth quarter 2020 net sales?

Snap-on's fourth quarter 2020 net sales were $1,074.4 million.

How did Snap-on perform in terms of operating earnings in Q4 2020?

Snap-on's operating earnings before financial services in Q4 2020 were $216.2 million, representing 20.1% of sales.

What were the full year 2020 net earnings for Snap-on?

Snap-on's full year 2020 net earnings were $627.0 million, or $11.44 per diluted share.

What is Snap-on's projection for capital expenditures in 2021?

Snap-on projects capital expenditures in 2021 to be between $90 million and $100 million.

What impact did COVID-19 have on Snap-on's 2020 sales?

COVID-19 caused decreased activity, particularly in the first half of 2020, leading to a 3.7% decline in full-year net sales.