Entering text into the input field will update the search result below

Snap-On: More Upside Thanks To A Weaker Dollar

Jun. 09, 2020 2:21 PM ETSnap-on Incorporated (SNA)6 Comments


  • Snap-on's first quarter saw the first earnings decline since the Great Financial Crisis as COVID-19 crushed organic growth.
  • Nonetheless, the company has strong financials and is currently benefiting from a weaker dollar.
  • I am aiming to buy the stock during the next dip as expectations are getting a bit stretched given the state of the economy.

In February of this year, I wrote that Snap-on (NYSE:SNA) was likely to see a fundamentally backed breakout. Unfortunately, this Wisconsin based tool producer got destroyed as soon as COVID-19 caused a global economic shutdown. The stock dropped to $90, which is down roughly 50% from the 2019 highs. Interestingly enough, the stock is almost back to where it was when I wrote my previous article with rather unfortunate timing. Anyhow, in this article, I will tell you why the stock could further benefit from a sector rotation to industrial and basic material stocks and a weaker dollar. So, bear with me.

Image result for snap on inc

Source: Snap-on

Here's What Happened In Q1

Let's start by mentioning that Snap-on reported its first adjusted EPS contraction since the Great Financial Crisis. In its second quarter, the company saw an EPS decline of 14% to $2.60. This is slightly below expectations of $2.70. You probably already guessed it, but the economic shutdown really hurt top-line growth. In the first quarter, net sales fell by 7.5% to $852.2 million. Organic sales were down 6.9%, or $62.7 million. Currency translations were a 1.0% headwind. The only positive factor was further acquisitions, which added $3.5 million to the net sales result.

Unfortunately, in times of steep sales declines, it is hard to adjust operating expenses right away, meaning that margins tend to suffer as well. In this case, operating expenses were 33.2% of net sales. This is an increase of 230 basis points compared to the prior-year quarter. Not only lower sales volume, but also higher restructuring costs and unfavorable foresight currency effects pressured margins and more than offset an $11.6 million benefit from a 2019 legal settlement.

As you can see below, the company's operating performance has reached its lowest level since 2015. It is very likely that this result

This article was written by

Leo Nelissen profile picture

Welcome to my Seeking Alpha profile!

I'm a buy-side financial markets analyst specializing in dividend opportunities, with a keen focus on major economic developments related to supply chains, infrastructure, and commodities. My articles provide insightful analysis and actionable investment ideas, with a particular emphasis on dividend growth opportunities. I aim to keep you informed of the latest macroeconomic trends and significant market developments through engaging content. Feel free to reach out to me via DMs or find me on Twitter (@Growth_Value_) for more insights.

Thank you for visiting my profile!

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

This article serves the sole purpose of adding value to the research process. Always take care of your own risk management and asset allocation.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

Comments (6)

thurston profile picture
Thanks for the article. I recently opened a small position in SNA, I shared your sentiment, it always seemed or seems to be expensive but always seemed like a good company and franchise.

I wonder if you have seen, or can comment upon, the James Grant story: seekingalpha.com/...

He seems pretty bright (I happen to be reading the bio he wrote on Bernard Baruch) but have not been able to find details on his critique. The Grant story his about a month ago so it could be that it was predicated on down beat economic forecasts.
What entry price are you targeting?
Leo Nelissen profile picture
I'm not sure if I get it, but I'm buying at $130
Don Dion profile picture
won't entry level mechanics get laid off because of the recession and lower car sales?
Vandooman profile picture
Good article as usual Leo. I have been long for years but recently used some tax loss carry forwards to reduce my too large exposure. The crisis was a good time to sell stocks, take tax losses and replace the stocks. No tax on the large gain from the SNA sale and a nice big deduction every year going forward. If I had waited a few more weeks, much of the losses would have evaporated. Never waste a crisis.

I am not sure SNA is in as as solid a position as a few years ago so an over-sized exposure was no longer justified. Still a good company.
Leo Nelissen profile picture
Thank you! Are you buying (in general), or are you waiting for better prices?
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!
To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.