Snap-on (SNA)

Professional tools and equipment manufacturer Snap-on (NYSE:SNA) missed Wall Street’s revenue expectations in Q1 CY2025, with sales falling 11% year on year to $1.14 billion. Its GAAP profit of $4.51 per share was 6.4% below analysts’ consensus estimates.

Company Overview

Founded in 1920, Snap-on (NYSE:SNA) is a global provider of tools, equipment, and diagnostics for various industries such as vehicle repair, aerospace, and the military.

Automation that increases efficiency and connected equipment that collects analyzable data have been trending, creating new demand. Some professional tools and equipment companies also provide software to accompany measurement or automated machinery, adding a stream of recurring revenues to their businesses. On the other hand, professional tools and equipment companies are at the whim of economic cycles. Consumer spending and interest rates, for example, can greatly impact the industrial production that drives demand for these companies’ offerings.

Competitors of Snap-on (NYSE:SNA) include Stanley Black & Decker (NYSE:SWK), Illinois Tool Works (NYSE:ITW), and private company Bosch.

A company’s long-term performance is an indicator of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Regrettably, Snap-on’s sales grew at a sluggish 4.4% compounded annual growth rate over the last five years. This was below our standard for the industrials sector and is a rough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Snap-on’s recent performance shows its demand has slowed as its revenue was flat over the last two years. We also note many other Professional Tools and Equipment businesses have faced declining sales because of cyclical headwinds. While Snap-on’s growth wasn’t the best, it did do better than its peers.

We can dig further into the company’s sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, Snap-on’s organic revenue averaged 3.4% year-on-year declines. Because this number is lower than its normal revenue growth, we can see that some mixture of acquisitions and foreign exchange rates boosted its headline results.

This quarter, Snap-on missed Wall Street’s estimates and reported a rather uninspiring 11% year-on-year revenue decline, generating $1.14 billion of revenue.

Looking ahead, sell-side analysts expect revenue to grow 6.7% over the next 12 months. Although this projection indicates its newer products and services will spur better top-line performance, it is still below the sector average.

Snap-on has best-in-class unit economics for an industrials company, enabling it to invest in areas such as research and development. Its margin also signals it sells differentiated products, not commodities. As you can see below, it averaged an elite 51.3% gross margin over the last five years. That means Snap-on only paid its suppliers $48.74 for every $100 in revenue.

In Q1, Snap-on produced a 50.7% gross profit margin, down 1.2 percentage points year on year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Snap-on has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 25.1%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Snap-on’s operating margin rose by 3.5 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q1, Snap-on generated an operating profit margin of 27.5%, up 1 percentage points year on year. The increase was encouraging, and because its revenue and gross margin actually decreased, we can assume it was more efficient because it trimmed its operating expenses like marketing, R&D, and administrative overhead.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Snap-on’s EPS grew at a solid 10.2% compounded annual growth rate over the last five years, higher than its 4.4% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into Snap-on’s earnings quality to better understand the drivers of its performance. As we mentioned earlier, Snap-on’s operating margin expanded by 3.5 percentage points over the last five years. On top of that, its share count shrank by 3.2%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Snap-on, its two-year annual EPS growth of 4.7% was lower than its five-year trend. We hope its growth can accelerate in the future.

In Q1, Snap-on reported EPS at $4.51, down from $4.91 in the same quarter last year. This print missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects Snap-on’s full-year EPS of $19.11 to grow 6%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Snap-on has shown terrific cash profitability, putting it in an advantageous position to invest in new products, return capital to investors, and consolidate the market during industry downturns. The company’s free cash flow margin was among the best in the industrials sector, averaging 17.8% over the last five years.

Taking a step back, we can see that Snap-on’s margin dropped by 5.7 percentage points during that time. It may have ticked higher more recently, but shareholders are likely hoping for its margin to at least revert to its historical level. If the longer-term trend returns, it could signal increasing investment needs and capital intensity.

Snap-on’s free cash flow clocked in at $275.6 million in Q1, equivalent to a 24.2% margin. This result was good as its margin was 1.8 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, causing temporary swings. Long-term trends trump fluctuations.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Snap-on hasn’t been the highest-quality company lately because of its poor top-line performance, it found a few growth initiatives in the past that worked out wonderfully. Its five-year average ROIC was 24.8%, splendid for an industrials business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Snap-on’s ROIC averaged 3.5 percentage point decreases over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

One of the best ways to mitigate bankruptcy risk is to hold more cash than debt.

Snap-on is a profitable, well-capitalized company with $1.43 billion of cash and $1.27 billion of debt on its balance sheet. This $161 million net cash position gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We struggled to find many positives in these results. Its revenue missed significantly and its EPS fell short of Wall Street’s estimates. Overall, this quarter could have been better. The stock traded down 2.2% to $324.78 immediately after reporting.

Updated: May 21, 2025 at 11:21 PM EDT

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

Snap-on isn’t a terrible business, but it doesn’t pass our quality test. To begin with, its revenue growth was uninspiring over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its admirable gross margins indicate the mission-critical nature of its offerings, the downside is its cash profitability fell over the last five years. On top of that, its organic revenue declined.

Snap-on’s P/E ratio based on the next 12 months is 16.1x. Beauty is in the eye of the beholder, but our analysis shows the upside isn’t great compared to the potential downside. We're fairly confident there are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $321.39 on the company (compared to the current share price of $322.12).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

To get the best start with StockStory, check out our most recent stock picks, and then sign up for our earnings alerts by adding companies to your watchlist. We typically have quarterly earnings results analyzed within seconds of the data being released, giving investors the chance to react before the market has fully absorbed the information. This is especially true for companies reporting pre-market.