Toolmaker and Motley Fool Income Investor pick Snap-on (NYSE:SNA) reports Q1 2006 earnings results tomorrow. Want to know what Wall Street expects to see? Read on. Want to know what really matters? Read on a bit more.
What analysts say:
- Buy, sell, or waffle? Wall Street analysts aren't a big grease-monkey crowd. Only five of them deign to review Snap-on, and of those, four don't even "hold" an opinion worth expressing. The one who does rates the company a sell.
- Revenues. Analysts expect this quarter's sales to ring in just 2% better than last year. The target is $608.3 million.
- Earnings. Profits are predicted to slide 10% to $0.28 per share.
What management says:
It's not something that will grab headlines, but dividend-lovers, like the folks at Motley Fool Income Investor (which counts Snap-on among its recommendations), will be pleased to hear that Snap-on announced an 8% dividend hike back in February. This announcement came out simultaneously with the firm's earnings release for fiscal 2005. In that release, CEO Jack Michaels both boasted of his firm's 120-basis-point increase in operating margins and pronounced the company's performance "not yet satisfactory."
In seeking a satisfactory level, Michaels pledged to "profitably grow sales, further lower costs, and maintain strong cash flow" in 2006. In the longer term, Snap-on's goal is to grow its operating margin to 10% within the next three years and ultimately lift that margin into the mid-teens.
What management does:
We're a long way from teen territory right now, but the firm does seem on track. On a rolling basis, gross margins are up 120 basis points over the past 18 months, operating margins have been boosted nearly by half, and on the bottom line, Snap-on is 22% more profitable today than it was a year and a half ago.
|
Margins % |
10/04 |
1/05 |
4/05 |
7/05 |
10/05 |
12/05 |
|---|---|---|---|---|---|---|
|
Gross |
44.4 |
45.8 |
45.6 |
45.9 |
46.6 |
45.6 |
|
Op. |
5.3 |
6.9 |
7.2 |
7.5 |
8.6 |
7.9 |
|
Net |
3.2 |
3.4 |
3.6 |
3.8 |
3.7 |
3.9 |
One Fool says:
After reviewing Snap-on's fiscal 2005 report, Income Investor lead analyst Mathew Emmert raised his estimate of the company's intrinsic value. (To get Mathew's read on the company's true worth, you can take the newsletter service for a free trial run.) Just imagine how much more the company will be worth if, or when, it reaches its operating-margin targets. Combine a 16% operating margin (twice the profits the firm makes today) with those "profitably grown" sales that Michaels was speaking of, and this company's stock has serious appreciation potential -- eventually. And while Snap-on's not there yet, the firm does pay investors a 2.8% dividend to come along for the ride.
Competitors:
- Autozone (NYSE:AZO)
- Black & Decker (NYSE:BDK)
- Home Depot (NYSE:HD)
- Ingersoll-Rand (NYSE:IR)
- Lowe's (NYSE:LOW)
- Pep Boys (NYSE:PBY)
Autozone and Home Depot areMotley Fool Inside Valuerecommendations.
Fool contributorRich Smithdoes not own shares of any company named above.
