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Snap-on Incorporated Reports Record Sales for 1998; Reports Results for the Fourth Quarter and Year-end 1998; Announces Additional $50 Million Share Repurchase Authorization
Fourth quarter net sales decreased 4.0% to $476.8 million, compared with $496.5 million in the fourth quarter of 1997. Excluding all restructuring charges, non-recurring charges and inventory adjustments (which collectively will be referred to as "1998 charges"), net earnings for the fourth quarter declined 21.9% to $32.8 million from $42.0 million in the 1997 fourth-quarter period. Diluted earnings per share, excluding all 1998 charges, declined to $.55 from $.68 in the same year-ago period, a decrease of 19.1%. Reported diluted earnings per share were $.21.
Net sales for the 1998 year reached a record $1.773 billion, compared with $1.672 billion in 1997, an increase of 6.0%. North America sales, on a comparable basis (excluding acquisitions, emissions sales, the extra accounting week in 1997 and the effects of currency), increased 8% in 1998 over 1997. Excluding 1998 charges, year-end net earnings declined 25.6% to $111.9 million, from $150.4 million reported in 1997. Diluted earnings per share were $1.87, excluding 1998 charges, compared with the previous year's $2.44, a decrease of 23.4%. Including 1998 charges, the company reported a loss of $.08 per share for 1998.
U.S. dealer sales remained healthy in the fourth quarter, increasing 7% on a comparable basis. Partially offsetting this performance were soft sales in the company's Canada and Asia/Pacific operations. In addition, fourth-quarter revenues were affected by anticipated difficult comparisons against 1997's fourth quarter, which included an extra accounting week and contained significant emissions-testing equipment sales. Also, expected modest emissions sales for the quarter did not materialize due to delays in various programs. The sales shortfall negatively affected earnings per share expectations in the quarter.
The company is making the anticipated progress on resolving the remaining process issues related to the implementation of its new enterprise-wide computer system. "Thanks to the efforts of our employees, dealer order fill rates have returned to historical levels and costs related to the achievement of those rates are finally declining," said Robert A. Cornog, Snap-on chairman, president and chief executive officer. "The trend in improving results on a quarter-over-quarter basis continues. With the computer systems process issues behind us for the most part, we feel very good about the fundamentals within our Heritage dealer business, and we are off to an excellent start in implementing Project Simplify."
Restructuring and Other Non-recurring Charges
On a pre-tax basis, restructuring and transition costs related to Project Simplify totaled $6.7 million ($.09 per share after tax) in the quarter. In addition, a portion of the charge taken in the third quarter for the reduction of SKUs included an estimated $10 million ($.10 per share after tax) LIFO benefit. The benefit was not realized, and was reversed in the fourth quarter.
Inventory Adjustment
Cost of goods sold in the fourth quarter includes a $14.1 million ($.15 per share after tax) reduction in inventory related to the conversion to the new enterprise-wide computer system. The new system provides for much improved visibility at an item level on field inventory.
1999 Outlook
The current range of published analyst estimates for diluted earnings per share is $2.60 to $2.95. The company believes that the lower half of the range is more appropriate at this time as it takes a more conservative approach due to the economic uncertainty in some regions of the world. The company also said it currently anticipates first quarter 1999 diluted earnings per share to be approximately even with last year's first quarter, which would represent another improvement in its quarter-over-quarter trends. The company's comments about earnings exclude the effects of the remaining anticipated non-recurring charges related to the previously announced Project Simplify initiative.
Share Repurchase
At its January 22, 1999, meeting, the Snap-on Incorporated board of directors approved an additional $50 million share repurchase authorization. The company's outstanding authorizations now total in excess of $150 million, purchases under which will be made from time to time through the open market and other purchases.
"Early in January, we received cash proceeds of $141.1 million from the partial sale of installment receivables to Newcourt Credit Group as part of the formation of Snap-on Credit LLC. The board increased its authorization to give management the flexibility to apply a portion of these proceeds to share repurchases," Cornog said. "With the progress we're making in creating a more effective, efficient Snap-on and long-term opportunities offered by the marketplace, we feel very good about the company's future."
Snap-on Incorporated is a $1.8 billion leading global developer, manufacturer and distributor of tool and equipment solutions for professional technicians, motor service shop owners, specialty repair centers, original equipment manufacturers, and industrial tool users worldwide. Product lines include hand and power tools, diagnostics and shop equipment, tool storage units, diagnostics software, and other solutions for the transportation service industry.
Statements in this news release that are not historical facts, including statements (i) that include the words "believes", "expects", "anticipates", or "estimates" or words of similar importance with reference to the Corporation or management; (ii) specifically identified as forward-looking; or (iii) describing the Corporation's or management's future plans, objectives or goals, are forward-looking statements. The Corporation or its representatives may also make similar forward-looking statements from time to time orally or in writing. The Corporation cautions the reader that these statements are subject to risks, uncertainties or other factors that could cause (and in some cases have caused) actual results to differ materially from those described in any such statement. Those important factors include the Corporation's ability to manufacture, distribute, and/or record the sale of products during the implementation of a new computer system involving the replacement of hardware and software components and the enterprise-wide linking of all functions; the timing or speed with which the Corporation can implement the Project Simplify initiatives and the roll-out of Snap-on Credit LLC without unanticipated complications; the Corporation's ability to withstand external negative factors including changes in trade, monetary and fiscal policies, laws and regulations, or other activities of governments or their agencies; significant changes in the current competitive environment; inflation; currency fluctuations or the material worsening of the economic and political situation in Asia or other parts of the world; and the achievement of productivity improvements and cost reductions. These factors may not constitute all factors that could cause actual results to differ materially from those discussed in any forward-looking statement. The Corporation operates in a continually changing business environment and new factors emerge from time to time. The Corporation cannot predict such factors nor can it assess the impact, if any, of such factors on the Corporation or its results. Accordingly, forward-looking statements should not be relied upon as a prediction of actual results. The Corporation disclaims any responsibility to update any forward-looking statement provided in this news release.
Consolidated Balance Sheets and Statements of Earnings for Fourth Quarter 1998
Media contact:
Richard Secor
414/656-5561