News Release
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Snap-on Reports Second Quarter EPS of $0.40 Before Special Charges; Takes Steps To Improve Profitability; Provides Outlook for the Remainder of 2001
-- Earnings were $23.3 million, or $0.40 per share, in the 2001
second quarter before special charges of $14.4 million after
tax, or $0.25 per share, in line with previously announced
expectations, and compared with $45.7 million, or $0.78 per
share, in the second quarter of 2000. Inclusive of these
charges, net earnings for the second quarter of 2001 were $8.9
million, or $0.15 per share.
-- The second quarter 2001 special charge of $20.5 million ($14.4
million after tax or $0.25 per share) includes restructuring
and non-recurring charges of $14.4 million ($9.0 million after
tax) and other non-comparable charges of $6.1 million ($5.4
million after tax). These special charges primarily relate to
costs for consolidation and closure of seven facilities
(including two previously announced sites), elimination of 98
positions, management transition and termination of a European
equipment supplier arrangement.
-- Net sales were $525.6 million in the second quarter of 2001, a
decline of 6.7% (or 4% before an unfavorable 2.7% effect of
translation), compared with $563.2 million in the prior year.
The decrease in organic sales was largely attributable to
reduced unit sales of big-ticket equipment and diagnostics
products.
-- Snap-on, in a two-pronged plan, is taking significant action
to 1) reduce costs companywide to adjust to the slower sales
environment and 2) improve operating performance in businesses
not earning acceptable financial returns. As a result of
selective rationalization and consolidation actions, it is
expected that Snap-on's global workforce of 14,000 will be
reduced by approximately 4% and that pre-tax charges for the
year will total $65 million to $75 million for 2001, including
the second-quarter charges. It is anticipated that
approximately 50% of the charge will be for non-cash costs.
Much of the plan focuses on streamlining Snap-on's equipment
and diagnostics operations in Europe and North America to
improve profitability. Strategically, these businesses enhance
Snap-on's global solutions capabilities, but are not providing
satisfactory financial returns. Most of the actions target a
one- to two-year payback, which will enhance financial returns
and support investment initiatives to deliver future
profitable growth.
"Snap-on is taking vigorous action to improve its operational fitness near term
and deliver profitable growth longer term," said Dale F. Elliott, Snap-on
president and chief executive officer. "We are clearly focused on achieving
operational and financial improvements in order to continue to deliver superior,
innovative products to our customers and acceptable returns to our
shareholders."
Second quarterCompared with the prior year, second-quarter 2001 performance was adversely impacted by a decline in sales of equipment and large diagnostics products for the vehicle-repair market in Europe and North America. Operating profit margin, before the impact of the special charges and net finance income, was essentially flat compared with the first quarter of 2001, but declined compared with a year ago reflecting unfavorable operating leverage on lower sales. Higher costs for the continued investment in Snap-on's dealer growth initiative and for new product development also contributed to the year-over-year margin compression.
In the Snap-on Dealer Group segment, sales declined 7%. Organic sales decreased 5%, largely due to softness in demand for big-ticket products. Currency translation had an unfavorable impact of 2%. In the U.S. dealer business, increased sales of tools and tool storage products were offset by the decline in equipment and diagnostics products, which are principally sold through the tech rep sales organization. This performance compares with a strong volume increase in the second quarter of 2000.
In the Commercial and Industrial Group segment, sales declined 6%, as a slight increase in the U.S. industrial tool business was offset by a drop in sales for equipment and large diagnostics products and an unfavorable impact of 3% due to currency translation. In addition, tool sales in Europe slowed during the second quarter, resulting in a modest decrease in sales in local currencies on a year-over-year basis.
As expected, net finance income was below the level of last year. The second quarter of 2000 benefited from deferred income on the sale of receivables resulting from the creation of the credit joint venture in 1999. Overall, the interest-rate environment remains favorable, although second-quarter loan originations were slightly below a year ago, reflecting the slower sales of big-ticket products.
Six monthsFor the first six months of 2001, earnings were $52.7 million, or $0.91 per share, compared with $81.2 million, or $1.38 per share, in 2000. These results are before non-comparable items in both years: $14.4 million after tax, or $0.25 per share, in special charges and the cumulative effect of an accounting change of $2.5 million after tax, or $0.05 per share, in 2001 and a cumulative gain of $25.4 million, or $0.43 per share, in 2000. Inclusive of these items, net earnings were $35.8 million, or $0.61 per share, in 2001 and $106.4 million, or $1.81 per share, in 2000. Net sales were $1.053 billion in the first six months of 2001 compared with $1.108 billion in 2000.
Outlook"The uncertain economic environment is likely to persist and result in continued weak sales conditions, however, Snap-on is taking action to both control costs and develop avenues of profitable growth," said Elliott. "We are balancing our aggressive cost efforts with continued investments in profitable growth. A number of new products are ready for launch in the second half, and our initiative to place `More Feet on the Street' in our franchised U.S. dealer business is advancing in line with our expectations, adding 130 net new U.S. dealers in the first half of 2001."
Assuming no further economic deterioration, continued currency stability and typical seasonal sales factors for the remainder of the year, EPS in the third quarter is expected to be in a range of $0.40 to $0.45 per share (before special items). Snap-on expects to benefit from its cost savings activities and see sequential earnings improvement in the fourth quarter, with EPS in a range of $0.55 to $0.65 per share (before special items). Further improvements are expected in 2002, as Snap-on realizes continuing benefits from its cost reduction and growth initiatives.
A discussion of today's announcement will be broadcast via webcast at www.snapon.com today at 10 a.m. CDT. Please see Snap-on's Web site for additional detail.
Snap-on Incorporated is a leading global developer, manufacturer and marketer of tool, diagnostic and equipment solutions for professional tool users. Product lines include hand and power tools, diagnostics and shop equipment, tool storage products, diagnostics software and other solutions for transportation-service, industrial, government, education and agricultural customers, and other commercial applications, including construction and electrical. Products are sold through its franchised dealer van, company direct sales and distributor channels, and the Internet. Founded in 1920, Snap-on is a $2.2 billion, S&P 500 company headquartered in Kenosha, Wisconsin, and employs approximately 14,000 people worldwide.
Statements in this news release that are not historical facts, including statements (i) that include the words "expects," "likely," "targets," "anticipates," or "estimates" or similar words that reference Snap-on or its management; (ii) specifically identified as forward-looking; or (iii) describing Snap-on's or management's future outlook, plans, objectives or goals, are forward-looking statements. Snap-on or its representatives may also make similar forward-looking statements from time to time orally or in writing. Snap-on 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 timing and progress with which Snap-on can continue to achieve higher productivity and attain further cost reductions, including the acceleration of expense adjustments in response to revenue changes; Snap-on's ability to adapt to management changes as part of the management succession process, to retain and attract dealers, to integrate Bahco, and to withstand external negative factors including changes in trade, monetary and fiscal policies, laws and regulations, or other activities of governments or their agencies; and the absence of significant changes in the current competitive environment, inflation, energy supply or pricing, legal proceedings, supplier disruptions, currency fluctuations or the material worsening of economic and political situations around the world. These factors may not constitute all factors that could cause actual results to differ materially from those discussed in any forward-looking statement. Snap-on operates in a continually changing business environment and new factors emerge from time to time. Snap-on cannot predict such factors nor can it assess the impact, if any, of such factors on Snap-on's financial position or its results of operations. Accordingly, forward-looking statements should not be relied upon as a prediction of actual results. Snap-on disclaims any responsibility to update any forward-looking statement provided in this news release.
SNAP-ON INCORPORATED
Consolidated Statements of Earnings
(Amounts in millions, except per share data)
(unaudited)
Second Quarter Ended Six Months Ended
-------------------- ----------------------
June 30, July 1, June 30, July 1,
2001 2000 2001 2000
-------- -------- -------- ---------
Net sales $525.6 $563.2 $1,053.0 $1,107.5
Cost of goods sold (286.3) (298.4) (570.0) (593.8)
Operating expenses (205.9) (193.5) (408.4) (388.8)
Net finance income 7.9 10.5 20.0 22.2
Restructuring and other
non-recurring charges (14.4) - (14.4) (0.4)
Interest expense (9.2) (10.6) (18.1) (20.9)
Other income (expense)
- net (1.6) 0.8 0.3 1.9
-------- -------- -------- ---------
Earnings from continuing
operations before
income taxes 16.1 72.0 62.4 127.7
Income taxes from
continuing operations 7.2 26.3 24.1 46.7
-------- -------- -------- ---------
Earnings from continuing
operations $ 8.9 $45.7 $ 38.3 $ 81.0
Cumulative effect of a
change in accounting
principle, net of tax - - (2.5) 25.4
-------- -------- -------- ---------
Net earnings $ 8.9 $45.7 $ 35.8 $106.4
======== ======== ======== =========
Earnings per share
- basic and diluted:
Earnings from
continuing
operations $0.15 $0.78 $ 0.66 $ 1.38
Cumulative effect
of a change in
accounting
principle, net of
tax - - (0.05) 0.43
-------- -------- -------- ---------
Net earnings $0.15 $0.78 $ 0.61 $ 1.81
======== ======== ======== =========
Weighted-average
shares outstanding:
Basic 57.9 58.6 57.8 58.6
Effect of dilutive
options 0.3 0.2 0.3 0.2
-------- -------- -------- ---------
Diluted 58.2 58.8 58.1 58.8
======== ======== ======== =========
SNAP-ON INCORPORATED
Consolidated Balance Sheets
(Amounts in millions)
June 30, December 30,
2001 2000
-------------- --------------
(unaudited)
Assets
Cash and cash equivalents $ 6.5 $ 6.1
Accounts receivable 621.5 644.5
Inventories 440.2 418.9
Prepaid expenses and other assets 129.2 116.9
-------------- --------------
Total current assets 1,197.4 1,186.4
Property and equipment - net 325.4 345.1
Deferred income tax benefits 36.2 33.0
Intangibles 393.0 424.6
Other assets 64.6 61.3
-------------- --------------
Total Assets $2,016.6 $2,050.4
============== ==============
Liabilities
Accounts payable $ 154.7 $ 161.0
Notes payable and current
maturities of long-term debt 38.0 70.3
Accrued compensation 53.3 56.3
Dealer deposits 41.1 39.8
Deferred subscription revenue 48.3 44.9
Other accrued liabilities 164.3 165.7
-------------- --------------
Total current liabilities 499.7 538.0
Long-term debt 508.5 473.0
Deferred income taxes 22.4 24.7
Retiree health care benefits 94.1 92.2
Pension liability 32.6 41.4
Other long-term liabilities 33.6 37.1
-------------- --------------
Total Liabilities $1,190.9 $1,206.4
Shareholders' Equity
Common stock - $1 par value $ 66.8 $ 66.8
Additional paid-in capital 51.8 71.6
Retained earnings 1,059.3 1,051.3
Accumulated other
comprehensive income (loss) (120.3) (87.2)
Grantor stock trust at
fair market value (148.2) (179.6)
Treasury stock at cost (83.7) (78.9)
-------------- --------------
Total Shareholders' Equity $ 825.7 $ 844.0
-------------- --------------
Total Liabilities and
Shareholders' Equity $2,016.6 $2,050.4
============== ==============
CONTACT: Snap-on Incorporated
Richard Secor (MR), 262/656-5561
or
Bill Pfund (IR), 262/656-6488