Snap-on Tools has shown sequential sales growth, leading to market optimism about a potential turnaround in the company’s growth trajectory.
Shares of Snap-on, a prominent manufacturer specializing in tools, equipment, diagnostics, and repair information systems, rose by 9% as of 2:15 p.m. ET on Thursday, as reported by S&P Global Market Intelligence. This increase followed the release of the company’s financial results for the third quarter.
Snap-on reported a slight 1% dip in sales, in line with analysts’ expectations. However, the company exceeded forecasts with a 4% increase in earnings per share (EPS), achieving $4.70 compared to the anticipated $4.56, which contributed to the rise in share value.
In the face of a complex business environment, Snap-on continues to serve a wide range of end markets by selling 85,000 tools to professionals across more than 130 countries, including automobile mechanics and heavy-duty commercial and industrial customers.
While initially, Snap-on’s Q3 earnings appeared unsatisfactory, a notable factor emerged as a point of interest for investors. The largest segment, Snap-on Tools (serving auto repair shops), experienced a 4% year-over-year decline in sales. Nevertheless, quarterly revenue saw a 4% increase.
This sequential growth is significant to investors, marking the first instance in over a decade—excluding the year 2020—that Q3 sales surpassed Q2, according to CEO Nick Pinchuk. This was seen as an early indication of a potential turnaround, as the company’s sales growth had stagnated after a 5% increase earlier in 2023.
Pinchuk noted the challenging market conditions over the past year, where many car repair shops are “cash rich, but confidence poor.” Additionally, the prospect of lower interest rates has kept some shop owners hesitant to make large, financed purchases from Snap-on, presenting another obstacle.
Despite these challenges, the sequential growth in the Snap-on Tools segment and ongoing EPS growth suggest a more optimistic outlook for the company. Additionally, the stock is valued at merely 15 times free cash flow, and consistent performance may contribute to long-term outperformance for Snap-on.
