Snap-on Earnings: Consolidated Sales Up Despite Slowdown in Tool Group

The market sent Snap-on’s SNA shares down 7% in intraday trading July 20 following the second-quarter earnings release. We think investors were concerned about the sales slowdown in the company’s tool group. Management pointed to weakness in power tool volume, which was slower ahead of anticipated new product launches in the third quarter. We see this as more of a timing issue, with customers holding off on buying power tools until the new line comes out. For the year, we think Snap-on can increase sales by over 2% compared with 2022. While this may look muted, tool sales have been rather strong over the past couple of years and are proving to be a tough comparison. Tool revenue was up 18% in 2021 and 7% in 2022.

We are raising our fair value estimate to $198 per share from $193. We have raised our near-term sales expectations for the commercial and industrial business, which is starting to accelerate; sales increased 4% on average year to date compared with flat sales growth a year ago. Notably, Snap-on’s commercial aerospace and military businesses are picking up steam. The company sells custom kits for repair technicians in both industries.

The standout in the quarter was the repair systems and information business, which increased sales more than 8% year on year. The key driver was double-digit sales growth in undercar equipment and mid-single-digit sales growth in diagnostic and repair products. We expect Snap-on’s RS&I business to benefit from increasing vehicle complexity, which we think will require more support products like handheld diagnostic equipment to assess mechanical issues and find repairs.