2. INVESTMENT THESIS
SNA is a potential buy
High operating margins in all business segments
Growth in higher margin products
Why a hold
Q3 earnings increased the price 7%
Low revenue growth of 3% in last 2 years
Skeptical of company growth drivers
5. ABOUT SNAP-ON
Established in 1920
Headquartered in Kenosha, Wisconsin
Developer and manufacturer of tool and equipment solutions for professional tool
users
Serves primarily the auto repair industry - also marine, and aviation industries,
vehicle manufacturers, utilities, and government and industrial organizations
6. MISSION
Go directly to the customer
Premium tools
A tool for all industries, all situations
One stop shop
9. DISTRIBUTION CHANNELS:
FRANCHISING
No brick and mortar stores
Franchising through rolling retail stores
Weekly visits to customers
Ranked 22nd in Entrepreneur's Franchise 500 List
Outside
Inside
10. DISTRIBUTION CHANNELS:
COMPANY DIRECT SALES
Sales representatives sell directly to OEMs and auto repair businesses
Sales of more expensive Snap-on products
Industrial and governmental direct sales
13. Main source of revenue
What Snap-on is known for
This segment is linked to success of the mobile van
franchises
Primarily sell to vehicle service and repair technicians
SEGMENTS:
TOOLS GROUP
14. SEGMENTS:
REPAIR SERVICES & INFORMATION GROUP
Business operations that serve professional vehicle
repair customers worldwide, primarily owners and
managers of independent repair shops and OEM
dealerships
Variety of productivity and information products
Diagnostic products – ex: New thermal imaging tool
Service and repair information products
Business management systems and services
15. SEGMENTS:
COMMERCIAL & INDUSTRIAL GROUP
Non auto repair sales
Industry specific tools and software
Serves a broad range of industrial and
commercial customers
16. SEGMENTS:
FINANCING
Profits off of lending money to companies with
interest
Finance franchise start-ups
Finance larger customer purchases
Expanding to become a key part of operations
17. GEOGRAPHICAL BREAKDOWN
Revenue Breakdown
70% North America
18% Europe
7% Asia/Pacific
5% Rest of the World
Sells to 130 countries
600 franchises were added in
last 10 years
18. COMPETITORS
Competes directly with Snap-on’s tools segment and has some overlap in
other SNA segments
- 3.5 times the tool segment revenue of SNA
- Security, Healthcare
- Greater international presence
Competes directly with Snap-on’s tools segment and financing segment
Also distributes tools through rolling shops that visit customers directly
- Offers 13,000 products – vs. SNA’s 22,000
- 1,500 US Franchises – vs. SNA’s 3,345
- No international presence – vs. SNA’s 30% international presence
19. COMPETITOR COMPARISON
Market Cap: $18 Billion
Profit Margin: 8.47%
ROA: 5.90%
P/E: 18.69
Price/Sales: 1.6
US Market Share of Power Tools: 37.9%
$188 Million in Research & Engineering
Market Cap: $9.2 billion
Profit Margin: 14.51%
ROA: 11.47%
P/E: 17.70
Price/Sales: 2.5
US Market Share of Power Tools: 16.2%
$50 Million in Research & Engineering
20. SNA VS. MACHINERY INDUSTRY
• Not a direct comparison
• Tools is a subgroup of the machinery industry
• SNA sells less sophisticated tools/machinery than a lot
of the companies in this industry
21. GROWTH DRIVERS:
INDUSTRY TRENDS
Aging vehicle ages are
projected to increase
maintenance demand
New vehicles are more
complex and new cars will
increase the need for
diagnostics
22. GROWTH DRIVERS:
STRATEGIES
Acquisitions
10/17 - Collision repair, truck alignment company – $155 million
Brake equipment company - $41 million
Build in emerging markets
New products - ex. diagnostic thermal imager
Asia Pacific – establish more of a physical presence
Releasing more products for specific industries
929 new aviation products last year
23. RISKS
Low growth in last 2 years - especially international
“The cost and penalties for failure can be high”
Number of franchises outside the U.S. have grown only half as fast as U.S. franchises
Rising steel prices – require a raise in tool prices
Difficult macro environment for machinery growth in areas like oil and gas, military and
the Middle East - lowers SNA’s Commercial & Industrials Group sales
FX risk – 10.2 million of unfavorable currency translation so far 2016 – mostly from
Brexit
24. FINANCIALS:
NINE MONTHS ENDED
Commercial & Industrial Tools Repair Systems & Information Financial Services
Revenue $645 million $1,216 million $680 million $270 million
Operating 14.4% 17.1% 25.0% 71.0%
Earnings
Earnings -2.7% 12.8% 7.0% 17.5%
Change
from Q3 2015
31. Thank you
Questions?
Investment Thesis
Distribution Channels
Segments
Competitors
Geographical Breakdown
Growth Drivers
Risks
Financial Statements
DCF Assumptions
Extra:
More Info on Franchises
Other Growth Drivers
Debt Payments
Q3 Earnings
32. MORE ABOUT FRANCHISING
Snap-on profits off of products and services sold, monthly fees, and its credit program
33. Q3 2016 EARNINGS
Bottom Line Beat
EPS of $2.22/share vs. Expected $2.15/share
Top Line Miss
Reported $834.1 million in Revenue vs. Expected $847.8
Result
Stock rose 7%
35. DEBT PAYMENTS
Cost of debt estimated at 4.5%
Strong A- credit rating
No concern over future debt payments
Recent acquisition of Car-O-Line will be purchased through cash and commercial
paper
