Snap-on Announces Fourth Quarter and Full Year 2019 Results

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 2019 operating results for the fourth quarter and full year.

• Net sales of $955.2 million in the quarter increased $2.7 million, or 0.3%, from 2018 levels, reflecting a $5.5 million, or 0.6%, organic sales increase and $3.5 million of acquisition-related sales, partially offset by $6.3 million of unfavorable foreign currency translation.

• Operating earnings before financial services for the quarter of $171.4 million, or 17.9% of sales, including $2.5 million of unfavorable foreign currency effects, compared to $182.1 million, or 19.1% of sales last year. In 2018, operating earnings before financial services included a $4.3 million benefit from the settlement of an employment-related litigation matter that was being appealed (the “2018 legal settlement”); excluding the 2018 legal settlement, operating earnings before financial services, as adjusted, were $177.8 million, or 18.7% of sales last year.

• Financial services revenue in the quarter of $83.9 million increased $1.2 million from 2018 levels; financial services operating earnings of $62.2 million compared to $56.1 million last year.

• Consolidated operating earnings totaled $233.6 million, including $2.6 million of unfavorable foreign currency effects, which compared to $238.2 million in the fourth quarter of 2018. As a percentage of revenues (net sales plus financial services revenue), consolidated operating earnings were 22.5% and 23.0% in the fourth quarters of 2019 and 2018, respectively. Excluding the 2018 legal settlement, consolidated operating earnings, as adjusted, were $233.9 million, or 22.6% of revenues, a year ago.

• The fourth quarter effective income tax rate was 22.3% in 2019 and 22.0% in 2018.

• Net earnings of $170.6 million, or $3.08 per diluted share, in the quarter compared to $175.0 million, or $3.09 per diluted share, a year ago. Excluding the 2018 legal settlement, net earnings, as adjusted, were $171.8 million, or $3.03 per diluted share, in 2018.

• Full year net sales of $3,730.0 million decreased $10.7 million, or 0.3%, from 2018 levels, reflecting a $45.4 million, or 1.2%, organic sales gain and $7.5 million of acquisition-related sales, more than offset by $63.6 million of unfavorable foreign currency translation. Full year net earnings of $693.5 million, or $12.41 per diluted share, compared to net earnings of $679.9 million, or $11.87 per diluted share, last year. In 2019, excluding the first quarter legal settlement related to a patent-related litigation matter that was being appealed (the “2019 legal settlement”), net earnings, as adjusted, were $684.8 million, or $12.26 per diluted share. In 2018, excluding the first quarter net debt items related to the issuance and extinguishment of debt, the 2018 legal settlement and a charge associated with U.S. tax legislation (the “tax charge”), net earnings, as adjusted, were $676.5 million, or $11.81 per diluted share. Earnings per diluted share, as adjusted, of $12.26 in 2019, increased 3.8% versus the prior year, as adjusted.

See “Non-GAAP Measures” below for a definition of, and further explanation about, organic sales and measures, as adjusted, excluding the legal settlements, net debt items and tax charge.

“We are encouraged by our progress in strengthening our operations in 2019 despite ongoing headwinds from unfavorable currency and economic challenges in certain geographies throughout the year,” said Nick Pinchuk, Snap-on chairman and chief executive officer. “Our results have demonstrated progress along a number of our runways for growth, including within our U.S. franchise network, and reflected the effectiveness of our Snap-on Value Creation Processes to help mitigate the headwinds. Finally, as we begin 2020, our 100th anniversary year, I want to thank our franchisees and associates for their ongoing contributions and to recognize their capabilities and commitment in making our progress possible now and in the future.”

Segment Results - Fourth Quarter

Commercial & Industrial Group segment sales of $352.9 million in the quarter increased $9.2 million, or 2.7%, from 2018 levels, reflecting an $11.8 million, or 3.5%, organic sales gain and $0.9 million of acquisition-related sales, partially offset by $3.5 million of unfavorable foreign currency translation. The organic sales increase includes higher sales in the segment’s power tools and Asia Pacific operations, as well as increases with customers in critical industries, partially offset by lower sales in the segment's European-based hand tools business.

Operating earnings of $45.0 million in the period, including $0.6 million of unfavorable foreign currency effects, compared to $50.8 million in 2018, while the operating margin (operating earnings as a percentage of segment sales) of 12.8% compared to 14.8% a year ago.

Snap-on Tools Group segment sales of $411.7 million in the quarter increased $4.3 million, or 1.1%, from 2018 levels, reflecting a $5.3 million, or 1.3%, organic sales gain, partially offset by $1.0 million of unfavorable foreign currency translation. The organic sales increase includes higher sales in the U.S. van network, partially offset by a decrease in the segment’s international operations.

Operating earnings of $54.3 million in the period, including $1.7 million of unfavorable foreign currency effects, decreased $2.7 million from 2018 levels, and the operating margin of 13.2% compared to 14.0% last year.

Repair Systems & Information Group segment sales of $335.0 million in the quarter decreased $4.9 million, or 1.4%, from 2018 levels, reflecting a $5.2 million, or 1.5%, organic sales decline and $2.3 million of unfavorable foreign currency translation, partially offset by $2.6 million of acquisition-related sales. The organic decrease includes lower sales to OEM dealerships, partially offset by higher sales of undercar equipment and increased sales of diagnostics and repair information products to independent repair shop owners and managers.

Operating earnings of $87.2 million in the period, including $0.2 million of unfavorable foreign currency effects, compared to $87.4 million in 2018, while the operating margin of 26.0% compared to 25.7% a year ago.

Financial Services operating earnings of $62.2 million on revenue of $83.9 million in the quarter compared to operating earnings of $56.1 million on revenue of $82.7 million a year ago. Originations of $262.4 million in the fourth quarter decreased $4.7 million, or 1.8%, from 2018 levels.

Corporate expenses of $15.1 million in the quarter compared to $13.1 million last year.

Outlook

As Snap-on enters its 100th anniversary year, the company expects to make continued progress in 2020 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, Snap-on expects that capital expenditures in 2020 will be in a range of $90 million to $100 million.

Snap-on currently anticipates that its full year 2020 effective income tax rate will be in the range of 23% to 24%.

Conference Call and Webcast on February 6, 2020, at 9:00 a.m. Central Time

A discussion of this release will be webcast on Thursday, February 6, 2020, 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 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 2019 legal settlement, which occurred in the first quarter of fiscal 2019.

For the fourth quarter and full year 2018, 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 a $4.3 million benefit ($3.2 million after tax) from the 2018 legal settlement. In addition, for the full year 2018, the company is including net earnings and diluted earnings per share, both as adjusted to exclude a net gain of $5.5 million ($4.1 million after tax) associated with a treasury lock settlement gain of $13.3 million related to the issuance of debt, partially offset by a $7.8 million expense related to the early extinguishment of debt, both of which occurred in the first quarter of fiscal 2018. Finally, for the full year 2018, the company is including net earnings, diluted earnings per share and its effective tax rate, all as adjusted to exclude the impact of a $3.9 million charge related to the implementation of U.S. tax legislation.

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 2019 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 $3.7 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, 2018, 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 visitwww.snapon.com.

Non-GAAP Supplemental Data

The following non-GAAP supplemental data is presented for informational purposes to provide readers with insight into the information used by management for assessing the operating performance of Snap-on Incorporated's ("Snap-on") non-financial services ("Operations") and "Financial Services" businesses.

The supplemental Operations data reflects the results of operations and financial position of Snap-on's tools, diagnostic and equipment products, software and other non-financial services operations with Financial Services on the equity method. The supplemental Financial Services data reflects the results of operations and financial position of Snap-on's U.S. and international financial services operations. The financing needs of Financial Services are met through intersegment borrowings and cash generated from Operations; Financial Services is charged interest expense on intersegment borrowings at market rates. Income taxes are charged to Financial Services on the basis of the specific tax attributes generated by the U.S. and international financial services businesses. Transactions between the Operations and Financial Services businesses were eliminated to arrive at the Condensed Consolidated Financial Statements.