Snap-on has experienced solid growth in recent years, driven by strong end-market demand. However, the company’s sales declined in the first quarter of 2024 due to lower demand for its tools and equipment. Despite this setback, I believe the company’s near-term outlook is promising.
The Tools business, Snap-on’s largest segment by revenue, has been impacted by a shift from DIFM (do-it-for-me) to DIY (do-it-yourself) demand due to rising inflation. However, the company is addressing this challenge by launching new product lines with lower payback periods. This strategy is expected to drive sales recovery in the coming quarters.
Snap-on’s C&I (Commercial & Industrial) segment is also facing similar dynamics, with tough comparisons in the power tools business. However, the company has launched new products that are receiving positive customer feedback, which should boost sales moving forward.
The Repair Systems and Information (RS&I) segment continues to perform well, with expanded reach in OEM programs and increased demand from dealerships. This strength is expected to continue in the near to medium term.
In terms of margins, Snap-on benefited from lower material and other costs, as well as savings from its Rapid Continuous Improvement (RCI) initiatives, resulting in improved gross and operating margins. The company is expected to see further margin gains from a more favorable product mix and operating leverage as sales recover.
Snap-on’s valuation is currently attractive, trading at a discount to its historical averages. The stock offers a dividend yield of 2.77%. Given the company’s solid long-term growth prospects, I recommend buying SNA stock for its potential to deliver both growth and value.
