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Letter to the Editor

Snap-on Q4 Earnings Down 21 Percent

KENOSHA, Wis. -- Snap-on Inc. fourth-quarter earnings dropped 21 percent, due to the soft economy and a declining worldwide industrial sector and vehicle-repair market in Europe and North America.

The Kenosha, Wisconsin-based tool and auto diagnostic equipment maker posted earnings of $30.1 million, or 52 cents per share, compared with $38.2 million, or 66 cents per share, a year ago, before special charges in both periods.

Analysts' earnings estimates, excluding goodwill, ranged from 43 cents to 54 cents per share, with a mean estimate of 51 cents, according to research firm Thomson Financial/First Call.

The company reported a net share loss of 30 cents for the fourth quarter compared with a net share profit of 25 cents in the prior-year period. Sales fell 3.9 percent to $534.6 million from $556.3 million a year ago.

In the Snap-on Dealer Group, worldwide net sales declined 1.9 percent. Excluding currency translation, sales were flat. In the U.S. dealer business, increased sales of tools and tool storage were offset by lower equipment sales through the tech rep organization. Excluding tech rep volume, U.S. dealer business sales were up 3 percent, in spite of the difficult economy, reflecting the continued strength of the franchised dealer channel.

During 2001, Snap-on focused resources on expanding its dealer network through its More Feet on the Street program of second vans and second franchises, achieving a net addition of 203 dealers in the United States. New products, such as the handheld, color graphing scanner and air-powered Crud Thug(TM) material-removing tool, contributed incremental sales and enhanced Snap-on's leadership position in the marketplace.

In the Commercial and Industrial Group, worldwide net sales declined 5.4 percent for the year. Unfavorable currency translation had a negative impact of 2 percent. The slowing economy depressed demand for equipment throughout the year, while the demand for tools in many industrial sectors, such as manufacturing, weakened in the second half. Sales in Europe declined 9 percent, with approximately one-half due to unfavorable currency translation. Equipment business operations are being consolidated in North America, with a clear focus toward achieving an improved operating profit. In Europe, the diagnostics business is progressing toward a pan-European "build-to-order" supply process. New product introductions, such as ergonomic Bahco hand tools and productivity-enhancing wheel balancers and aligners, strengthened Snap-on's marketplace position.

For the fourth quarter of 2001, special charges of $65.5 million ($47.5 million after tax or $0.82 per share) include restructuring and non-recurring charges of $17.2 million, and $48.3 million of non-comparable charges included in operating expenses. Restructuring charges of $17.0 million were for the consolidation or closure of nine facilities, related asset write-downs and severance costs for the elimination of 340 positions. As a result of the ongoing review of business operations throughout 2001, the work force reduction was 6 percentcompared with an original estimate of 4 percent. Restructuring and non-comparable costs (excluding arbitration-related costs) are expected to total $81 million pretax (including an estimated $7-$8 million in transition costs associated with these restructuring actions that are expected to be incurred in the first half of 2002) compared with the original range of $65-$75 million estimated in June 2001.

"Snap-on continues to make strides in improving operating performance and cash flow, in spite of the soft economic conditions," said Dale F. Elliott, Snap-on president and chief executive officer. "We expect current weak economic conditions to continue to challenge sales growth and profitability, particularly in the first half of 2002. With $40 million in pretax savings targeted in 2002 from our restructuring and cost control activities, we expect to invest one-half of those savings to support the further development of innovative new products and profitable growth initiatives, such as continued expansion of the Snap-on dealer network."

The company expects that its continued emphasis on inventory reduction along with the continued weak economic conditions will limit Snap-on's ability to benefit from expected restructuring savings in the first quarter. In the second quarter, however, Snap-on expects that improving seasonal volume and the benefits from operational fitness savings will lead to EPS gains year over year. In the second half, should economic conditions begin to improve, Snap-on expects further EPS growth.

Snap-on Incorporated is a leading global innovator, manufacturer and marketer of tool, diagnostic and equipment solutions for professional tool users.

©2002 Collision Repair Industry INSIGHT
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