Turnarounds take time. That's just the way it is. Unless the mistake was a one-time blunder that whacked sales or profits for a particular quarter or year (New Coke, anyone?), it takes time to unwind and repair the problems that initially led to disappointing performance. Investors in Snap-on
Reported product sales for the fourth quarter slipped from last year -- $592 million versus $599 million -- and the decline is more pronounced when you strip out $21.3 million in currency gains. While an extra week in the year-ago quarter affected the comparison to the tune of $25 million to $30 million, any way you slice it, sales growth was weak.
Free cash flow for all of 2004 was over $108 million, though the company generated negative free cash flow for the fourth quarter because of changes in its working capital.
On a positive note, management is addressing its challenges head-on. Snap-on believes it has neglected its customers and is now focusing on improving both how it responds to them and service levels. On the production side, management still believes that there is "too much cost in the company" and that there is insufficient productivity across the board, despite progress made with lean manufacturing initiatives.
Patient investors can also take some heart in the fact that the market for tools is strong. Competitors like Stanley Works
Snap-on shareholders should continue to be patient. The company has faced up to its challenges and is implementing changes, and the tools still enjoy a good reputation for quality and value. What's more, the dividend does not appear to be in any immediate danger, so patient owners can collect a bit of income while they wait for a turnaround in the business.
Mathew Emmert selected Snap-on for Motley Fool Income Investor subscribers in the October 2004 issue thanks to the firm's 3% dividend. Since then, Snap-on's total return has been 16.57% versus the Standard & Poor's 7.45% return. Want continuing coverage on Snap-on and other big dividend payers? Take a free trial today!
Fool contributor Stephen Simpson, a chartered financial analyst, has no ownership interest in any stocks mentioned.