Snap-on Incorporated — Form 10-Q Summary
Reporting period: Fiscal first quarter ended April 2, 2011; comparative quarter ended April 3, 2010. The supplied filing is for 2011 Q1, not 2010 Q1 as stated in the request metadata. Financial statements are unaudited; amounts are in millions except per-share data.
Financial performance
| Metric | Q1 2011 | Q1 2010 | Change |
|---|---|---|---|
| Net sales | $693.7 | $621.6 | +11.6% |
| Total revenues, including financial services | $719.5 | $631.3 | +14.0% |
| Gross profit / margin | $330.6 / 47.7% | $287.6 / 46.3% | Margin +1.4 pts |
| Operating earnings | $99.8 | $70.0 | +42.6% |
| Net earnings attributable to Snap-on | $56.2 | $36.8 | +52.7% |
| Diluted EPS | $0.96 | $0.63 | +$0.33 |
| Operating cash flow | $27.9 | $10.4 | +$17.5 |
- Organic sales increased 10.0%, excluding $9.1 million of favorable currency translation. Gross-margin gains reflected higher volume, manufacturing utilization, productivity initiatives and favorable currency.
- Operating expenses rose 12.7% to $243.3 million, including higher volume-related costs, incentive and stock compensation, pension expense and currency effects; expense growth was partly offset by cost-reduction benefits and lower bad-debt expense.
- Financial Services returned to operating profit of $12.5 million from a $1.7 million loss, as revenue increased to $25.8 million from $9.7 million. Management attributed the improvement primarily to growth in the on-balance-sheet finance portfolio following the 2009 end of the CIT joint venture.
- By segment, sales and operating earnings rose in Commercial & Industrial ($272.4 and $31.6), Snap-on Tools ($282.0 and $37.1), and Repair Systems & Information ($227.0 and $42.8). Segment sales include intersegment transactions and are not directly comparable with consolidated net sales.
Cash, liquidity and debt
- Cash and equivalents were $517.3 at April 2, down $54.9 from year-end. Working capital was $928.4, up $44.0 from January 1.
- Operating cash flow was $27.9; investing cash outflow was $59.8, including $18.6 of capital expenditures and net finance-receivable funding. Financing cash outflow was $23.9, including $17.6 of share repurchases and $18.9 of dividends.
- Total debt was $1,170.5, including $217.5 current maturities and notes payable and $953.0 long-term debt. The $200 million, 6.25% notes mature August 15, 2011. Debt fair value was reported as $1,253.3.
- The company had no borrowings under its $500 million revolving facility or its up-to-$100 million receivables-backed facility. It reported compliance with debt covenants; covenant ratios were 0.44 and 2.59 against maximums of 0.60 and 3.50, respectively.
- Inventory increased $39.2 from year-end to $368.6, primarily to support higher demand; inventory turns declined to 4.4 from 4.7. The company reported no off-balance-sheet arrangements.
Outlook, risks and unusual items
- Management expected 2011 capital expenditures of approximately $65 million, higher year-over-year pension expense of about $11 million, and a full-year effective tax rate near 33%. Interest on the $250 million of senior notes issued in December 2010 was expected to be about $2.7 million per quarter.
- Management said cash, operating flows and credit availability were expected to fund anticipated requirements, including the August debt repayment, finance originations, capital expenditures, restructuring, pensions, dividends and possible repurchases. No full-year revenue or earnings guidance is stated in the supplied filing text.
- A material arbitration dispute with CIT remained unresolved. Snap-on alleged approximately $115 million in damages; CIT denied the claim and asserted claims exceeding $110 million, most relating to the $107.8 million withheld by Snap-on. Arbitration was scheduled for Q2 2011, and management said the likely outcome could not be determined.
- Other notable items: $3.0 million of exit and disposal costs, mainly related to workforce reductions and the planned mid-2011 closure of the Newmarket, Canada facility; 296,000 shares repurchased for $17.6 million; and the 2011 quarter included a $64.5 million foreign-currency translation gain in other comprehensive income.
- Risks cited include economic and market weakness, currency and interest-rate movements, raw-material and energy costs, execution of cost-reduction and growth plans, franchisee retention and financing needs, pension costs, litigation and facility closures. Management stated disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Developments and eventual cash impact of the CIT arbitration, including treatment of the $107.8 million withheld balance.
- How the August 2011 $200 million maturity was funded or refinanced, and subsequent cash and debt levels.
- Whether operating cash generation keeps pace with finance-receivable growth, inventory investment and capital spending.
- Credit quality, delinquencies and loss allowances as Snap-on retains more originated loans on its balance sheet.
- Progress against the stated capital-expenditure, pension-expense and tax-rate outlook, and performance of the planned facility closure and cost initiatives.