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Snap-on Announces Second Quarter 2013 Results

Diluted EPS of $1.50 increases 15.4%;
Sales of $764.1 million up 3.6% over 2012 levels;
Operating earnings before financial services improves to 15.4% of sales

KENOSHA, Wis.--(BUSINESS WIRE)--Jul. 18, 2013-- 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 2013.

  • Sales of $764.1 million increased $26.2 million, or 3.6%, from 2012 levels; excluding $4.7 million of unfavorable foreign currency translation and $8.5 million of sales from the previously announced May 2013 acquisition of Challenger Lifts, Inc. (“Challenger”), organic sales increased 3.1%.
  • Operating earnings before financial services of $117.8 million, or 15.4% of sales, compares with $104.6 million, or 14.2% of sales, last year.
  • Restructuring costs totaled $1.8 million in the quarter; restructuring costs of $10.2 million in the second quarter of 2012 included $6.8 million for the settlement of a pension plan. Stock-based and mark-to-market expenses in the quarter increased $4.4 million from 2012 levels.
  • Financial services operating earnings of $30.6 million increased $5.0 million from 2012 levels.
  • Consolidated operating earnings of $148.4 million improved to 18.4% of revenues (net sales plus financial services revenue) as compared to $130.2 million, or 16.7% of revenues, last year.
  • Net earnings of $88.4 million, or $1.50 per diluted share, compares with net earnings of $76.4 million, or $1.30 per diluted share, a year ago.

“We believe our performance in the second quarter reaffirms Snap-on’s strengths in serving serious professionals performing critical repairs around the world every day,” said Nick Pinchuk, Snap-on chairman and chief executive officer. “Again this quarter, we achieved higher year-over-year sales and increased operating income in spite of ongoing headwinds in specific parts of our business, and we continued to progress in those strategic areas of importance that we’ve identified as being decisive to our future. For example, our recent acquisition of Challenger Lifts in the second quarter broadens our established capabilities and furthers our advancement along the growth runway of expanding with repair shop owners and managers. Finally, I thank our franchisees and associates worldwide for their significant dedication and contributions, without which these results would not have been possible.”

Segment Results

Commercial & Industrial Group segment sales of $266.2 million in the quarter decreased $17.2 million, or 6.1%, from 2012 levels primarily due to lower sales to the military and in the segment’s European-based hand tools business. Excluding $2.1 million of unfavorable foreign currency translation, organic sales in the quarter decreased 5.4%.

Operating earnings of $33.6 million in the period increased $0.8 million from 2012 levels, and the operating margin (operating earnings as a percentage of segment sales) of 12.6% improved from 11.6% a year ago.

Snap-on Tools Group segment sales of $346.2 million in the quarter rose $21.2 million, or 6.5%, from 2012 levels, reflecting sales gains across both the company’s U.S. and international franchise operations. Excluding $1.5 million of unfavorable foreign currency translation, organic sales increased 7.0%.

Operating earnings of $54.5 million in the period increased $10.0 million from 2012 levels and the operating margin of 15.7% compared with 13.7% a year ago. Operating earnings in 2013 includes $0.2 million of restructuring costs; operating earnings in the second quarter of 2012 included $6.9 million of restructuring costs largely for a pension plan settlement. Operating earnings in 2013 also includes $1.8 million of higher stock-based and mark-to-market expenses associated with the company’s franchisee stock purchase plan.

Repair Systems & Information Group segment sales of $246.2 million in the quarter increased $18.8 million, or 8.3%, from 2012 levels. Excluding $8.5 million of sales from the Challenger acquisition and $0.8 million of unfavorable foreign currency translation, organic sales in the quarter rose 4.9%, primarily due to higher sales to Original Equipment Manufacturer (OEM) dealerships and gains in sales of diagnostics and repair information products to independent repair shop owners and managers.

Operating earnings of $56.7 million in the period increased $4.5 million from 2012 levels; the operating margin was 23.0% in both the second quarters of 2013 and 2012.

Financial Services operating earnings of $30.6 million on revenue of $44.5 million in the quarter compared with operating earnings of $25.6 million on revenue of $39.9 million a year ago.

Corporate expenses of $27.0 million in the quarter increased from $24.9 million last year, primarily due to $2.6 million of higher stock-based and mark-to-market expenses.

Outlook

In 2013, Snap-on expects to continue with the advancement of its strategic framework designed to enhance its mobile tool distribution network, expand in the vehicle repair garage, extend to critical industries and build in emerging markets. In pursuit of these initiatives, Snap-on continues to anticipate that capital expenditures in 2013 will be in a range of $70 million to $80 million. Snap-on also expects that its full year 2013 effective income tax rate will be comparable to its 2012 rate.

Conference Call and Webcast July 18, 2013, at 9:00 a.m. Central Time

A discussion of this release will be webcast on Thursday, July 18, 2013, 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, including the accompanying slide presentation, visit www.snapon.com/sna and click on the link toward the bottom of the page. Additional detail about Snap-on is also available on the Snap-on web site.

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. Products and services are sold through the company’s franchisee, company-direct, distributor and internet channels. Founded in 1920, Snap-on is a $2.9 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 29, 2012, which 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.

For additional information, please visit www.snapon.com.

SNAP-ON INCORPORATED
Condensed Consolidated Statements of Earnings
(Amounts in millions, except per share data)
(unaudited)
       
 
 
Three Months Ended Six Months Ended
June 29, June 30, June 29, June 30,
2013 2012 2013 2012
 
Net sales $ 764.1 $ 737.9 $ 1,505.8 $ 1,473.1
Cost of goods sold   (390.9 )   (388.0 )   (775.7 )   (775.5 )
Gross profit 373.2 349.9 730.1 697.6
Operating expenses   (255.4 )   (245.3 )   (504.5 )   (495.5 )
Operating earnings before financial services 117.8 104.6 225.6 202.1
 
Financial services revenue 44.5 39.9 88.5 77.9
Financial services expenses   (13.9 )   (14.3 )   (27.4 )   (28.4 )
Operating earnings from financial services   30.6     25.6     61.1     49.5  
 
Operating earnings 148.4 130.2 286.7 251.6
Interest expense (13.8 ) (13.9 ) (27.4 ) (27.8 )
Other income (expense) – net   (1.7 )   0.1     (2.3 )   (0.3 )
Earnings before income taxes and
equity earnings 132.9 116.4 257.0 223.5
Income tax expense   (42.5 )   (38.3 )   (81.3 )   (73.5 )
Earnings before equity earnings 90.4 78.1 175.7 150.0
Equity earnings, net of tax   0.3     0.4     0.1     1.5  
Net earnings 90.7 78.5 175.8 151.5
Net earnings attributable to noncontrolling interests   (2.3 )   (2.1 )   (4.6 )   (4.1 )
Net earnings attributable to Snap-on Inc. $ 88.4   $ 76.4   $ 171.2   $ 147.4  
 
 
Net earnings per share attributable to Snap-on Inc.:
Basic $ 1.52 $ 1.31 $ 2.94 $ 2.53
Diluted 1.50 1.30 2.90 2.51
 
Weighted-average shares outstanding:
Basic 58.2 58.2 58.2 58.2
Effect of dilutive options   0.8     0.6     0.9     0.6  
Diluted   59.0     58.8     59.1     58.8  

         
SNAP-ON INCORPORATED
Supplemental Segment Information
(Amounts in millions)
(unaudited)
 
 
Three Months Ended Six Months Ended
June 29, June 30, June 29, June 30,
2013 2012 2013 2012
 
Net sales:
Commercial & Industrial Group $ 266.2 $ 283.4 $ 532.6 $ 569.9
Snap-on Tools Group 346.2 325.0 673.5 641.6
Repair Systems & Information Group   246.2     227.4     492.3     453.5  
Segment net sales 858.6

 

835.8 1,698.4 1,665.0
Intersegment eliminations   (94.5 )   (97.9 )   (192.6 )   (191.9 )
Total net sales $ 764.1 $ 737.9 $ 1,505.8 $ 1,473.1
Financial Services revenue   44.5     39.9     88.5     77.9  
Total revenues $ 808.6   $ 777.8   $ 1,594.3   $ 1,551.0  
 
Operating earnings:
Commercial & Industrial Group $ 33.6 $ 32.8 $ 64.2 $ 62.0
Snap-on Tools Group 54.5 44.5 101.7 90.6
Repair Systems & Information Group 56.7 52.2 113.2 100.8
Financial Services   30.6     25.6     61.1     49.5  
Segment operating earnings 175.4

 

155.1 340.2 302.9
Corporate   (27.0 )   (24.9 )   (53.5 )   (51.3 )
Operating earnings $ 148.4 $ 130.2 $ 286.7 $ 251.6
Interest expense (13.8 ) (13.9 ) (27.4 ) (27.8 )
Other income (expense) – net   (1.7 )   0.1     (2.3 )   (0.3 )
Earnings before income taxes
and equity earnings $ 132.9   $ 116.4   $ 257.0   $ 223.5  

 
SNAP-ON INCORPORATED
Condensed Consolidated Balance Sheets
(Amounts in millions)
(unaudited)
     
 
June 29, December 29,
2013   2012
 
Assets
Cash and cash equivalents $ 174.7 $ 214.5
Trade and other accounts receivable – net 499.9 497.9
Finance receivables – net 355.4 323.1
Contract receivables – net 56.1 62.7
Inventories – net 418.1 404.2
Deferred income tax assets 77.0 81.8
Prepaid expenses and other assets   105.0     84.8  
Total current assets 1,686.2 1,669.0
 
Property and equipment – net 375.1 375.2
Deferred income tax assets 104.4 110.4
Long-term finance receivables – net 520.8 494.6
Long-term contract receivables – net 203.0 194.4
Goodwill 823.9 807.4
Other intangibles – net 192.2 187.2
Other assets   55.9     64.1  
Total assets $ 3,961.5   $ 3,902.3  
 
Liabilities and Equity
Notes payable and current maturities of long-term debt $ 114.9 $ 5.2
Accounts payable 157.6 142.5
Accrued benefits 44.6 50.6
Accrued compensation 73.3 88.3
Franchisee deposits 54.8 54.7
Other accrued liabilities   250.9     247.9  
Total current liabilities 696.1 589.2
 
Long-term debt 861.4 970.4
Deferred income tax liabilities 138.5 127.1
Retiree health care benefits 46.0 48.4
Pension liabilities 239.7 260.7
Other long-term liabilities   83.9     87.5  
Total liabilities   2,065.6     2,083.3  
 
Equity
Shareholders' equity attributable to Snap-on Inc.
Common stock 67.4 67.4
Additional paid-in capital 219.6 204.6
Retained earnings 2,193.2 2,067.0
Accumulated other comprehensive loss (155.9 ) (124.2 )
Treasury stock at cost   (445.5 )   (412.7 )
Total shareholders' equity attributable to Snap-on Inc. 1,878.8 1,802.1
Noncontrolling interests   17.1     16.9  
Total equity   1,895.9     1,819.0  
Total liabilities and equity $ 3,961.5   $ 3,902.3  

   
SNAP-ON INCORPORATED
Condensed Consolidated Statements of Cash Flow
(Amounts in millions)
(unaudited)
 
Three Months Ended
June 29, June 30,
2013 2012
 
Operating activities:
Net earnings $ 90.7 $ 78.5
Adjustments to reconcile net earnings to net cash provided (used) by
operating activities:
Depreciation 13.0 12.6
Amortization of other intangibles 6.5 6.6
Provision for losses on finance receivables 5.6 4.8
Provision for losses on non-finance receivables 2.1 3.5
Stock-based compensation expense 10.0 7.4
Excess tax benefits from stock-based compensation (1.9 ) (0.7 )
Deferred income tax benefit (3.5 ) (10.8 )
Gain on sale of assets - (0.1 )
Changes in operating assets and liabilities, net of effects of acquisition:
(Increase) decrease in trade and other accounts receivable 2.4 (5.9 )
Increase in contract receivables (0.8 ) (9.3 )
Increase in inventories (15.7 ) (15.3 )
Increase in prepaid and other assets (10.5 ) (6.6 )
Increase in accounts payable 4.4 5.1
Increase in accruals and other liabilities   7.8     21.9  
Net cash provided by operating activities 110.1 91.7
 
Investing activities:
Additions to finance receivables (177.1 ) (149.9 )
Collections of finance receivables 124.6 110.1
Capital expenditures (16.7 ) (18.0 )
Acquisition of business (38.2 ) -
Disposal of property and equipment 0.2 0.3
Other   (0.3 )   -  
Net cash used by investing activities (107.5 ) (57.5 )
 
Financing activities:
Proceeds from short-term borrowings 1.6 -
Repayments of short-term borrowings - (0.8 )
Net increase in other short-term borrowings 2.4 1.2
Cash dividends paid (22.3 ) (19.5 )
Purchase of treasury stock (40.4 ) (8.2 )
Proceeds from stock purchase and option plans 18.7 9.2
Excess tax benefits from stock-based compensation 1.9 0.7
Other   (2.4 )   (2.7 )
Net cash used by financing activities (40.5 ) (20.1 )
 
Effect of exchange rate changes on cash and cash equivalents   (1.0 )   (2.1 )
Increase (decrease) in cash and cash equivalents (38.9 ) 12.0
 
Cash and cash equivalents at beginning of period   213.6     161.6  
Cash and cash equivalents at end of period $ 174.7   $ 173.6  
 
Supplemental cash flow disclosures:
Cash paid for interest $ (1.5 ) $ (1.5 )
Net cash paid for income taxes (57.9 ) (32.2 )

   
SNAP-ON INCORPORATED
Condensed Consolidated Statements of Cash Flow
(Amounts in millions)
(unaudited)
 
Six Months Ended
June 29, June 30,
2013 2012
 
Operating activities:
Net earnings $ 175.8 $ 151.5
Adjustments to reconcile net earnings to net cash provided (used) by
operating activities:
Depreciation 25.5 25.2
Amortization of other intangibles 12.8 13.0
Provision for losses on finance receivables 9.5 8.7
Provision for losses on non-finance receivables 6.2 6.3
Stock-based compensation expense 19.5 16.1
Excess tax benefits from stock-based compensation (5.9 ) (2.7 )
Deferred income tax provision 10.9 2.6
Gain on sale of assets (0.1 ) (0.9 )
Changes in operating assets and liabilities, net of effects of acquisition:
Increase in trade and other accounts receivable (9.9 ) (2.9 )
Increase in contract receivables (7.3 ) (13.5 )
Increase in inventories (18.8 ) (19.4 )
Increase in prepaid and other assets (19.8 ) (27.0 )
Increase in accounts payable 14.3 20.1
Decrease in accruals and other liabilities   (26.9 )   (20.4 )
Net cash provided by operating activities 185.8 156.7
 
Investing activities:
Additions to finance receivables (321.5 ) (285.4 )
Collections of finance receivables 247.1 216.2
Capital expenditures (31.4 ) (39.8 )
Acquisition of business (38.2 ) -
Disposal of property and equipment 0.5 2.2
Other   (10.5 )   -  
Net cash used by investing activities (154.0 ) (106.8 )
 
Financing activities:
Proceeds from short-term borrowings 1.6 6.5
Repayments of short-term borrowings (0.5 ) (8.5 )
Net increase in other short-term borrowings 9.0 0.2
Cash dividends paid (44.4 ) (39.6 )
Purchase of treasury stock (62.1 ) (38.1 )
Proceeds from stock purchase and option plans 26.1 22.5
Excess tax benefits from stock-based compensation 5.9 2.7
Other   (5.4 )   (6.3 )
Net cash used by financing activities (69.8 ) (60.6 )
 
Effect of exchange rate changes on cash and cash equivalents   (1.8 )   (1.3 )
Decrease in cash and cash equivalents (39.8 ) (12.0 )
 
Cash and cash equivalents at beginning of year   214.5     185.6  
Cash and cash equivalents at end of period $ 174.7   $ 173.6  
 
Supplemental cash flow disclosures:
Cash paid for interest $ (27.4 ) $ (27.7 )
Net cash paid for income taxes (79.5 ) (39.1 )

       
SNAP-ON INCORPORATED
Supplemental Consolidating Data - Condensed Statements of Earnings
(Amounts in millions)
(unaudited)
 
 
Operations* Financial Services
Three Months Ended Three Months Ended
June 29, June 30, June 29, June 30,
2013 2012 2013 2012
 
Net sales $ 764.1 $ 737.9 $ - $ -
Cost of goods sold   (390.9 )   (388.0 )   -     -  
Gross profit 373.2 349.9 - -
Operating expenses   (255.4 )   (245.3 )   -     -  
Operating earnings before financial services 117.8 104.6 - -
 
Financial services revenue - - 44.5 39.9
Financial services expenses   -     -     (13.9 )   (14.3 )
Operating earnings from financial services   -     -     30.6     25.6  
 
Operating earnings 117.8 104.6 30.6 25.6
Interest expense (13.3 ) (13.6 ) (0.5 ) (0.3 )
Intersegment interest income (expense) – net 11.8 10.4 (11.8 ) (10.4 )
Other income (expense) – net   (1.7 )   0.2     -     (0.1 )
Earnings before income taxes and equity earnings 114.6 101.6 18.3 14.8
Income tax expense   (35.8 )   (32.9 )   (6.7 )   (5.4 )
Earnings before equity earnings 78.8 68.7 11.6 9.4
Financial services – net earnings
attributable to Snap-on Inc. 11.6 9.4 - -
Equity earnings, net of tax   0.3     0.4     -     -  
Net earnings 90.7 78.5 11.6 9.4
Net earnings attributable to noncontrolling interests   (2.3 )   (2.1 )   -     -  
Net earnings attributable to Snap-on Inc. $ 88.4   $ 76.4   $ 11.6   $ 9.4  
 
* Snap-on Inc. with Financial Services on the equity method.
Transactions between Operations and Financial Services were eliminated to arrive at the consolidated financial statements.

       
SNAP-ON INCORPORATED
Supplemental Consolidating Data - Condensed Statements of Earnings
(Amounts in millions)
(unaudited)
 
 
Operations* Financial Services
Six Months Ended Six Months Ended
June 29, June 30, June 29, June 30,
2013 2012 2013 2012
 
Net sales $ 1,505.8 $ 1,473.1 $ - $ -
Cost of goods sold   (775.7 )   (775.5 )   -     -  
Gross profit 730.1 697.6 - -
Operating expenses   (504.5 )   (495.5 )   -     -  
Operating earnings before financial services 225.6 202.1 - -
 
Financial services revenue - - 88.5 77.9
Financial services expenses   -     -     (27.4 )   (28.4 )
Operating earnings from financial services   -     -     61.1     49.5  
 
Operating earnings 225.6 202.1 61.1 49.5
Interest expense (26.5 ) (27.2 ) (0.9 ) (0.6 )
Intersegment interest income (expense) – net 23.1 20.2 (23.1 ) (20.2 )
Other income (expense) – net   (2.4 )   (0.2 )   0.1     (0.1 )
Earnings before income taxes and equity earnings 219.8 194.9 37.2 28.6
Income tax expense   (67.7 )   (63.0 )   (13.6 )   (10.5 )
Earnings before equity earnings 152.1 131.9 23.6 18.1
Financial services – net earnings
attributable to Snap-on Inc. 23.6 18.1 - -
Equity earnings, net of tax   0.1     1.5     -     -  
Net earnings 175.8 151.5 23.6 18.1
Net earnings attributable to noncontrolling interests   (4.6 )   (4.1 )   -     -  
Net earnings attributable to Snap-on Inc. $ 171.2   $ 147.4   $ 23.6   $ 18.1  
 
* Snap-on Incorporated with Financial Services on the equity method.
Transactions between Operations and Financial Services were eliminated to arrive at the consolidated financial statements.

       
SNAP-ON INCORPORATED
Supplemental Consolidating Data - Condensed Balance Sheets
(Amounts in millions)
(unaudited)
 
 
Operations* Financial Services
June 29, December 29, June 29, December 29,
2013 2012 2013 2012
 
Assets
Cash and cash equivalents $ 170.9 $ 211.2 $ 3.8 $ 3.3
Intersegment receivables 14.8 14.1 - -
Trade and other accounts receivable – net 499.0 497.5 0.9 0.4
Finance receivables – net - - 355.4 323.1
Contract receivables – net 7.4 7.4 48.7 55.3
Inventories – net 418.1 404.2 - -
Deferred income tax assets 64.0 68.8 13.0 13.0
Prepaid expenses and other assets   108.0   88.3   1.8   1.0
Total current assets 1,282.2 1,291.5 423.6 396.1
 
Property and equipment – net 373.4 373.2 1.7 2.0
Investment in Financial Services 177.9 165.3 - -
Deferred income tax assets 104.2 110.2 0.2 0.2
Long-term finance receivables – net - - 520.8 494.6
Long-term contract receivables – net 11.9 12.1 191.1 182.3
Goodwill 823.9 807.4 - -
Other intangibles – net 192.2 187.2 - -
Other assets   57.4   65.3   1.0   1.1
Total assets $ 3,023.1 $ 3,012.2 $ 1,138.4 $ 1,076.3
 
Liabilities and Equity
Notes payable and current maturities of long-term debt $ 22.3 $ 5.2 $ 92.6 $ -
Accounts payable 157.3 142.1 0.3 0.4
Intersegment payables - - 14.8 14.1
Accrued benefits 44.6 50.6 - -
Accrued compensation 71.6 84.9 1.7 3.4
Franchisee deposits 54.8 54.7 - -
Other accrued liabilities   221.7   207.8   36.5   46.9
Total current liabilities 572.3 545.3 145.9 64.8
 
Long-term debt and intersegment long-term debt 64.0 143.2 797.4 827.2
Deferred income tax liabilities 137.7 125.7 0.8 1.4
Retiree health care benefits 46.0 48.4 - -
Pension liabilities 239.7 260.7 - -
Other long-term liabilities   67.5   69.9   16.4   17.6
Total liabilities   1,127.2   1,193.2   960.5   911.0
 
Total shareholders' equity attributable to Snap-on Inc. 1,878.8 1,802.1 177.9 165.3
Noncontrolling interests   17.1   16.9   -   -
Total equity   1,895.9   1,819.0   177.9   165.3
Total liabilities and equity $ 3,023.1 $ 3,012.2 $ 1,138.4 $ 1,076.3
 
* Snap-on Inc. with Financial Services on the equity method.
Transactions between Operations and Financial Services were eliminated to arrive at the consolidated financial statements.

Source: Snap-on Incorporated

Snap-on Incorporated
Investors:
Leslie Kratcoski
262/656-6121
or
Media:
Richard Secor
262/656-5561