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Snap-on Reports Third-Quarter EPS of $0.41 Before Special Charges; Initiatives to Improve Profitability on Track
KENOSHA, Wis.--(BUSINESS WIRE)--Oct. 23, 2001--Snap-on Incorporated (NYSE: SNA), a global leader in tools, diagnostics and equipment, announced today its third-quarter results.
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Net sales were $508.1 million in the third quarter of 2001, a decline of 0.7% compared with $511.9 million in the prior year. A 3.3% sales increase in the Snap-on Dealer Group largely offset a 4.6% decrease in sales in the Commercial and Industrial Group. Currency translation had a negative impact of 1% on consolidated sales.
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Earnings were $23.9 million, or $0.41 per share, in the 2001 third quarter, before special charges of $23.3 million after tax, or $0.40 per share. In the third quarter of 2000, earnings were $28.4 million, or $0.48 per share. Inclusive of charges, net earnings for the third quarter of 2001 were $0.6 million, or $0.01 per share.
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The third-quarter 2001 special charge of $34.4 million before tax ($23.3 million after tax or $0.40 per share) includes restructuring and non-recurring charges of $30.4 million and other non-comparable charges of $4.0 million. These charges, in line with previously announced plans, primarily relate to the consolidation or closure of 17 facilities, the elimination of 358 positions, and the write-down of assets associated with the restructuring actions and the previously announced exiting of an unprofitable segment of the emissions business.
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Previously announced actions to improve underperforming business units, control costs and address changes in economic conditions are progressing. The consolidation of certain equipment business operations in North America is under way, with a clear focus on reducing cost structure. In Europe, the diagnostics business is moving toward a "build-to-order" supply process with a pan-European manufacturing and distribution footprint, while sales and marketing activities are being more tightly focused to ensure a closer value-added relationship with customers. As a result of these and other actions, pre-tax savings of more than $40 million in 2002 are anticipated. It is expected that approximately one-half of these savings will be targeted to support increased development of innovative new products and initiatives for profitable growth, like the recent efforts to expand the number of Snap-on dealers.
"Snap-on is clearly sharpening its focus on improving operational fitness," said Dale F. Elliott, Snap-on president and chief executive officer. "While the uncertainty about the economy presents a near-term sales challenge, we continue to examine all processes and aspects of our business to provide superior value to our customers and deliver acceptable financial returns to our shareholders."
Third quarter
Compared with the prior year, third-quarter 2001 sales performance continued to be adversely impacted by a decline in sales of equipment and large diagnostics products for the vehicle-repair market in Europe and North America. The operating profit margin of 7.8% improved sequentially from the second quarter on seasonally lower sales, before the impact of special charges and net finance income, reflecting the initial benefits of tighter cost controls and the company's focus on operational fitness. The operating margin declined 100 basis points compared with a year ago, reflecting unfavorable operating leverage on weaker sales coupled with higher costs associated with Snap-on's dealer growth initiative and new product development.
In the Snap-on Dealer Group segment, worldwide sales increased
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3.3%, reflecting continued strength in core tools combined with an expanded number of dealers from the "More Feet on the Street" program, and the introduction of new products and marketing efforts. These sales more than offset continued sluggish demand for shop equipment products, which are principally sold through the tech rep sales organization. The U.S. dealer business had increased sales of 6%, compared to the weak volume reported in the third quarter of 2000, when the vehicle-service market was impacted by high fuel costs.
In the Commercial and Industrial Group segment, sales declined
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4.6%, reflecting continued weakness for capital goods equipment and softer demand for tools in many commercial and industrial sectors related to the uncertain economy. In addition, unfavorable currency translation impacted reported sales by 2%.
Net finance income was below the level of last year. Financing originations were slightly below a year ago, reflecting the slower sales of equipment, partially offset by a more favorable interest-rate environment.
Free cash flow in the third quarter was $38.2 million, in spite of the lower net earnings, reflecting improved working capital management. Total debt at quarter end was down $60.6 million from last year and $10.7 million from 2000 year end, and the debt-to-capital ratio improved to 39.5% at the end of the third quarter from 41.1% in the prior year.
Nine months
For the first nine months of 2001, earnings were $76.6 million, or $1.32 per share, compared with $109.6 million, or $1.86 per share, in 2000. These results are before non-comparable items in both years. Non-comparable items in 2001 include special charges of $37.7 million after tax, or $0.65 per share, and the cumulative effect of an accounting change of a $2.5 million loss after tax, or $0.05 per share, and in 2000, a cumulative gain of $25.4 million, or $0.43 per share. Inclusive of these items, net earnings were $36.4 million, or $0.62 per share, in 2001 and $134.8 million, or $2.29 per share, in 2000. Net sales were $1.561 billion in the nine months of 2001, a decline of 3.6% from $1.619 billion in 2000. Currency translation had an unfavorable impact of 2% on 2001 nine-month sales.
Outlook
The continued uncertain economic environment will likely temper the traditional seasonal strength in sales during the fourth quarter. Stable demand is expected to provide flat to slightly increased year-over-year sales in the worldwide Snap-on Dealer Group, while continued weak economic conditions are likely to cause a modest sales decline in the Commercial and Industrial Group. Margins are expected to improve sequentially, benefiting from the ongoing review of costs and savings in operational fitness initiatives. Assuming no further disruption or economic deterioration and continued currency stability, earnings in the fourth quarter before special charges are expected to be in a range of $0.52 to $0.57 per share.
Total special charges for 2001 are expected to be within the previously announced range of $65 million to $75 million. Significant progress is being made to enhance the operational performance throughout the company, with much of the benefit to begin in 2002.
Further improvements are expected in 2002, as Snap-on realizes continuing benefits from its cost reduction and growth initiatives, partially offset by investment spending that will enhance long-term profitable growth. Current economic conditions are likely to continue to challenge sales growth, particularly in the first half of 2002. Assuming no improvement in economic conditions and continued stable currency translation, sales are anticipated to increase only slightly. Operating earnings are expected to increase over 2001 reflecting the cost savings of internally driven activities, with goodwill on a comparable basis in both years. (Snap-on will adopt Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" in 2002. Snap-on is currently determining the impact of adopting this standard.)
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, 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; terrorist disruptions on business, 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)
Third Quarter Ended Nine Months Ended
September 29, September 30, September 29, September 30,
2001 2000 2001 2000
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Net sales $ 508.1 $ 511.9 $ 1,561.1 $ 1,619.4
Cost of goods sold (273.3) (278.9) (843.3) (872.7)
Cost of goods sold
- non-recurring
charges (12.4) - (12.4) -
Operating expenses (199.0) (187.7) (607.4) (576.5)
Net finance income 7.7 8.4 27.7 30.6
Restructuring and
other non-recurring
charges (18.0) - (32.4) (0.4)
Interest expense (9.1) (10.3) (27.2) (31.2)
Other income
(expense) - net (0.8) 1.3 (0.5) 3.2
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Earnings from continuing
operations before
income taxes 3.2 44.7 65.6 172.4
Income taxes from
continuing operations 2.6 16.3 26.7 63.0
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Earnings from
continuing
operations $ 0.6 $ 28.4 $ 38.9 $ 109.4
Cumulative effect
of a change in
accounting principle,
net of tax - - (2.5) 25.4
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Net earnings $ 0.6 $ 28.4 $ 36.4 $ 134.8
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Earnings per share
- basic and diluted:
Earnings from
continuing
operations $ 0.01 $ 0.48 $ 0.67 $ 1.86
Cumulative effect
of a change in
accounting principle,
net of tax - - (0.05) 0.43
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Net earnings $ 0.01 $ 0.48 $ 0.62 $ 2.29
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Weighted-average
shares outstanding:
Basic 58.0 58.5 57.9 58.6
Effect of
dilutive options 0.2 0.2 0.2 0.2
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Diluted 58.2 58.7 58.1 58.8
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SNAP-ON INCORPORATED
Consolidated Balance Sheets
(Amounts in millions)
September 29, December 30,
2001 2000
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(unaudited)
Assets
Cash and cash equivalents $ 5.5 $ 6.1
Accounts receivable 622.4 644.5
Inventories 429.6 418.9
Prepaid expenses and other assets 133.7 116.9
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Total current assets 1,191.2 1,186.4
Property and equipment - net 325.0 345.1
Deferred income tax benefits 33.6 33.0
Intangibles 401.2 424.6
Other assets 64.9 61.3
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Total Assets $ 2,015.9 $ 2,050.4
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Liabilities
Accounts payable $ 147.6 $ 161.0
Notes payable and current
maturities of long-term debt 42.4 70.3
Accrued compensation 54.6 56.3
Dealer deposits 45.6 39.8
Deferred subscription revenue 45.8 44.9
Accrued restructuring reserves 12.9 -
Other accrued liabilities 175.9 165.7
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Total current liabilities 524.8 538.0
Long-term debt 490.2 473.0
Deferred income taxes 22.7 24.7
Retiree health care benefits 95.0 92.2
Pension liability 30.2 41.4
Other long-term liabilities 36.3 37.1
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Total Liabilities $ 1,199.2 $ 1,206.4
Shareholders' Equity
Common stock - $1 par value $ 66.9 $ 66.8
Additional paid-in capital 37.3 71.6
Retained earnings 1,046.0 1,051.3
Accumulated other
comprehensive income (loss) (110.2) (87.2)
Grantor stock trust at fair market value (136.9) (179.6)
Treasury stock at cost (86.4) (78.9)
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Total Shareholders' Equity $ 816.7 $ 844.0
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Total Liabilities
and Shareholders' Equity $ 2,015.9 $ 2,050.4
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| CONTACT: | Snap-on Incorporated |
|---|---|
| Media contact: | |
| Richard Secor, 262/656-5561 | |
| Investor contact: | |
| Bill Pfund, 262/656-6488 | |
| URL: | www.snapon.com |