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WIKI ANALYSIS
Snap-On Incorporated (NYSE: SNA) won Best Hand Tools, Best Power Tools, Best Tool Storage, and Best Scan Tools in the 2008 Frost & Sullivan Technician’s Choice Awards.[1] In the small tools & accessories industry, SNA competes against Stanley Works (SWK), Danaher (DHR), and Black & Decker (BDK).
Some small tools companies have struggled in the past six months. The recession caused a drop in Do-It-Yourself tool sales, while the weak U.S. Housing Market caused a drop in construction tool sales. Over 70% of SNA's sales come from professional automotive repair, so the company has experienced less hardship than its competitors. SWK and BDK shares are both down over 50% in the past six months.[2] In 2008, SNA acquired a 60% share in the Chinese tool manufacturer Zhejiang Wanda Tools and plans to further invest in China, India, and Eastern Europe in 2009.[3] Also in 2008, the company installed the Rapid Continuous Improvement (RCI) manufacturing process to eliminate waste and cut costs. Reknowned for its use at Toyota Motor (TM), the RCI system saved SNA $30 million in 2008.[3]
Business Financials
Snap-On operates in three main business segments:
Commercial and Industrial Group (44.9% of Revenue, 41.3% of Gross Profit)
The Commercial & Industrial Group consists of the business operations providing tools and equipment products and equipment repair services to industrial and commercial customers. This group's main end markets are the automotive industry and industrial business. To get away from the weak U.S. Economy, this group plans to invest in emerging market growth initiatives in 2009, including China, India and Eastern Europe. From 2007 to 2008, Commercial and Industrial Group net sales increased 4.3%.
Snap-on Tools Group (35.1% of Revenue, 36.4% of Gross Profit)
SNA's Tools Group sells hand tools, power tools, and tool storage products. Hand tools range from screwdrivers to cutting tools, power tools range from drills to sanders, and tool storage products range from tool chests to cabinets. From 2007 to 2008, Snap-on Tools net sales decreased 0.3%. Particularly, sales to U.S. franchisees declined 3.2% due to a harsher economic climate.
Diagnostics & Information Group (20% of Revenue, 22.3% of Gross Profit)
The Diagnostics & Information Group consists of the business operations providing diagnostics equipment, vehicle service information, business management systems, electronic parts catalogs, and other instruction manuals for the automobile industry. Over 38,000 automotive dealerships use SNA's electronic parts catalogues. From 2007 to 2008, Diagnostics & information Group net sales decreased 3.5%.[4]
Trends and Forces
SNA avoids U.S. Do-It-Yourself (DIY) market risk with its robust Professional Auto Repair end market.
In the small tools & accessories industry, there are two categories of consumers: industry professionals such as auto mechanics and construction workers, and Do-It-Yourself (DIY) consumers such as a Bob Villa-inspired middle aged man working on a project in his garage. The DIY business has been hammered in the past six months due to the recession, as the average consumer is not willing to purchase items for hobbies.[3] Over 70% of SNA's sales go to the automotive industry, but its products are mainly sold to professionals, ranging from neighborhood auto mechanics to NASCAR mechanics. Furthermore, SNA owns half of the market share for the professional tools business.[3] Even in a rough economy, living with a broken-down car is hard, almost impossible for some Americans. Thus, Americans still need to get their cars repaired, and the professional auto repair industry has been minimally affected by the recession. From 2007 to 2008, SNA Q4 total sales dropped 10%.[3] Comparatively, Black & Decker (BDK) total sales dropped 17% in that same time period.[5]
SNA Installed Cost-Cutting Program to Balance Fluctuating Commodities Prices
Steel and oil are vital commodities used in Snap-On's product manufacturing, so price fluctuations in these commodities will have a dynamic impact on SNA operating margins. In 2008, the price of steel was as high as $1,234/ton in July and as low as $780/ton in December.[6] In addition, crude oil was as high as $145/barrel in July and as low as $35/barrel in December.[7] Volatile commodity prices brings uncertainty to SNA's annual costs, so the company installed a cost-cutting manufacturing process in 2008. SNA installed the Rapid Continuous Improvement (RCI) processes to manufacture its products more efficiently -- eliminating waste and cutting costs. RCI is based on the Japanese business method Kaizen, which is renowned for being used by Toyota Motor (TM). Kaizen includes defining the problem, choosing the best people, and correcting the problem in one week or less using Kaizen tools and techniques, such as doing small experiments to test procedure efficiency.[8] RCI helped SNA cut its operating expenses by $30 million in 2008.
SNA acquires Zhejiang Wanda Tools to expand internationally.
In March of 2008, SNA acquired a 60% share in the Chinese tool manufacturer Zhejiang Wanda Tools for $16.4 million.[9] Snap-on also has manufacturing facilities in Kunshan and Xiaoshan, China.[10] The acquisition is part of the company's plan to grow in emerging markets and low-cost environments. With poor U.S. economic conditions, SNA wants to improve business in countries that have booming populations and more economic optimism. From Q3 08 to Q4 08, U.S. GDP decreased 6.3%, as the U.S. contracted 3.8% for the quarter.[11] In addition, U.S. unemployment hit a dismal 8.1% in February 2009,[12] while the consumer confidence index hit a historic low of 25.0 in February.[13] Comparatively, China's GDP grew 6.8% from Q3 08 to Q4 08[14] and India's GDP grew 5.3%[15] In 2009, SNA plans to continue to invest overseas, particularly in China, India, and Eastern Europe.[3]
Competition
Small Tools & Accessories
- Stanley Works (SWK) -- Like SNA, SWK manufactures a line of DIY and industrial tools. SWK has seen share price drop 50% due to sluggish 2009 DIY market.[16]
- Danaher (DHR) -- DHR manufactures Sears Holdings (SHLD)' Craftsman tools line, which competes with SNA's hand and power tools line. Other than SWK, DHR is the only producer of a complete consumer hand-tools line.[17]
- Black & Decker (BDK) -- BDK produces power tools, hardware and home improvement products, and fastening systems. BDK competes with SNA in power tools and home improvement products.[18]
| Competition | Snap-On (SNA) [4] | Stanley Works (SWK)[19] | Danaher (DHR) [20] | Black & Decker (BDK) [21] |
| Revenue $Mil | 2,853.30 | 4,483.80 | 11,025.92 | 6,563.20 |
| Gross Profit $Mil | 1,284.6 | 1,692.90 | 5,040.90 | 2,222.70 |
| Net Profit Margin % | 8.41% | 6.20% | 11.01% | 7.89% |
| Operating Margin % | 13.63% | 10.06% | 15.79% | 8.87% |
Notes
- ↑ Auto Spectator, "Snap-on Recognized by Frost & Sullivan as Leader in US Automotive Technicians' Choice Survey"
- ↑ Investopedia, "The Stanley Works Needs Work," 03/17/09
- ↑ 3.0 3.1 3.2 3.3 3.4 3.5 3.6 3.7 SNA 2008 Annual Report
- ↑ 4.0 4.1 4.2 SNA 2008 10-k, Item 6: Selected Financial Data, page 22
- ↑ Reuters, BDK Income Statement
- ↑ Steel on the Net, "2008 Steel Prices"
- ↑ NYMEX Crude Oil Futures
- ↑ Kaizen website, "About us"
- ↑ Investing Minds, "Snap On"
- ↑ Business Wire, "Snap-on Announces First Quarter 2008 Results"
- ↑ Retailer Daily, "U.S. GDP Shrinks in Q4 ‘08," 03/26/09
- ↑ Retailer Daily, "U.S. Unemployment Hits 8.1%," 03/06/09
- ↑ Retailer Daily, "Consumer Confidence Index Reaches All-time Low," 02/26/09
- ↑ China GDP growth slows to 6.8% in Q4 of 2008," 01/22/09
- ↑ Business Standard, "Industries to Shine in Q4," 03/28/09
- ↑ Investopedia, "Stanley Works Needs Work," 03/17/09
- ↑ Danaher Website, "About"
- ↑ Black & Decker website, "Corporate Profile"
- ↑ SWK 2007 10-k, Item 6: Selected Financial Data, page 14
- ↑ DHR 2007 10-k, Item 6: Selected Financial Data, page 25
- ↑ BDK 2008 10-k, Item 6: Selected Financial Data, page 17
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