Snap-On Incorporated (SNA) Earnings Highlight INSANE Efficiency

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Professional tools manufacturer and marketer Snap-On Incorporated (SNA) reported first-quarter earnings Thursday morning, and there were more than a few takeaways.

SNA Stock: Snap-On Earnings Highlight INSANE EfficiencyBy no means was today’s Snap-On earnings report stellar — that much is certainly true. However, SNA stock was my pick for this year’s InvestorPlace Best Stocks contest, and although I’m currently languishing in sixth place, I still think Snap-On is a solid stock to own for the remainder of 2016 … and beyond!

Without further ado, let’s take a look at Q1 earnings and what they mean for SNA stock.

SNA Stock: Efficiency Machine

Okay, so Snap-On’s revenue growth is less than impressive. Q1 revenue of $834.2 million was up just 0.8% year-over-year, missing consensus estimates calling for $853.2 million by a country mile.

That said, SNA stock is definitely feeling the pain from a strong dollar and weakening overseas currencies. Foreign exchange headwinds dinged revenue by $16.4 million last quarter, meaning revenue growth would’ve been around 2.5% on a constant-currency basis.

Now for earnings: This is where SNA really shows up to play. Earnings per share rose more than 15% from the same quarter last year, clocking in at $2.16. Analysts only expected EPS of $2.09.

Shares of Snap-On stock are down slightly in midday trading… so why am I so jazzed about results?

Well firstly, you never like to see such stagnant revenue growth. I’m not at all jazzed about that, thank you very much.

I am, however, quite Herbie Hancock’d about SNA’s stubborn ability to grow earnings far more quickly than revenue. It’s a feature of Snap-On shares I pointed out when I originally touted SNA stock back in late December:

“While sales have risen 6.8% annually for the last five years, earnings have risen at nearly quadruple that pace, soaring 25.2% per annum over the same period.”

Snap-On’s obsession with efficiency once more shows as 0.8% top-line growth translated to 15% bottom-line growth. Specifically, the company’s obsession with “rapid continuous improvement” helped boost gross margins from 49.5% to 49.8%, while operating expenses fell from 32.8% to 31.2% year-over-year.

This combination of better margins and lower expenses is the magic formula SNA uses to continuously grow its bottom line. Of course, the bottom line could expand even more rapidly if revenue growth was more robust.

Revenue growth certainly isn’t robust currently, but there are two silver linings here: 1) Snap-On took a big hit from currency headwinds, so modest organic sales growth was actually there and 2) SNA’s best-performing division is growing healthily.

The Commercial and Industrial division saw sales fall 3.5% year-over-year last quarter to $287 million, but the most important division, Snap-On Tools, saw revenue jump 6.4% to $402.5 million.

Always, always, always pay attention to the bread and butter.

Impressively, Snap-On’s Financial Services division is also doing quite well, with operating earnings jumping 16.6% year-over-year to $47 million. By offering financing to qualified buyers that purchase its products, Snap-On gets to double dip and double monetize.

Provided it doesn’t get fast and loose with credit requirements — 60+ delinquency rates are low, right around 1% today — this should be a great strategy for SNA stock.

So: Is Snap-On stock going to break out and go on a heater anytime soon? Probably not.

But if you’re into slow and steady, SNA stock is a solid bet, and its 1.5% dividend can act as an additional cushion for income investors.

As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/04/sna-stock-snap-on-earnings/.

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