Snap-on(SNA) - 2024 Q4 - Annual Report

Business Overview Snap-on is a global provider of tools, equipment, and diagnostics, focusing on strategic growth and operational efficiency through its Value Creation Processes Company Overview and Strategy Snap-on, founded in 1920, is a global manufacturer of tools and diagnostics, strategically expanding its customer base and enhancing efficiency through its Value Creation Processes - Snap-on is a leading global provider of tools, equipment, diagnostics, and repair solutions for professional users in sectors like vehicle repair, aerospace, military, and manufacturing[17] - The company's core strategies include "coherent growth" to expand its customer base and the "Value Creation Processes" (including RCI) to drive efficiency and operational improvements[19] - Primary customer segments include commercial/industrial professionals, vehicle repair technicians (served via mobile vans), and owners/managers of repair shops and OEM dealerships[20] Operating Segments Snap-on operates through four segments: Commercial & Industrial, Snap-on Tools, Repair Systems & Information, and Financial Services, with performance evaluated by net sales and operating earnings - The company's four reportable operating segments are: Commercial & Industrial Group, Snap-on Tools Group, Repair Systems & Information Group, and Financial Services[23] - Performance for the three main operating groups is measured by segment net sales and operating earnings, while Financial Services is evaluated on its revenue and operating earnings[24] Products and Services The company's offerings are categorized into Tools, Diagnostics/Information/Management Systems, and Equipment, marketed under various well-known brands, with Tools being the largest category by net sales Consolidated Net Sales by Product Category (2022-2024) | Product Category | 2024 Net Sales (in millions) | 2023 Net Sales (in millions) | 2022 Net Sales (in millions) | | :--- | :--- | :--- | :--- | | Tools | $2,546.2 | $2,528.9 | $2,399.4 | | Diagnostics, information and management systems | $1,028.1 | $991.2 | $942.4 | | Equipment | $1,133.1 | $1,210.1 | $1,151.0 | | Total | $4,707.4 | $4,730.2 | $4,492.8 | - The Tools category includes hand tools, power tools, and tool storage[29] - Diagnostics, information and management systems include diagnostic products, repair information, and business management systems[30] - Equipment includes solutions like wheel alignment, vehicle lifts, and collision repair equipment[31] - The company markets its products under a wide range of well-known brand names, including Snap-on, BAHCO, Blue-Point, Car-O-Liner, Mitchell1, and Sun[34] Markets and Distribution Channels Snap-on serves vehicle service and industrial markets through diverse channels, prominently featuring its mobile van franchise network, alongside direct sales, independent distributors, and e-commerce - The two largest market sectors are the vehicle service and repair sector and the industrial sector[37] - Key distribution channels include the mobile van franchise network, company direct sales, independent distributors, and e-commerce[43] - As of fiscal year-end 2024, the company had approximately 4,700 total routes, including about 3,400 in the United States[47] - Franchise fee revenue, including initial and ongoing monthly fees, totaled $19.4 million in fiscal 2024, up from $18.7 million in 2023[45] Human Capital and ESG Snap-on employed 13,000 people globally in 2024, prioritizing workplace safety and reporting 89,085 metric tons of Scope 1 and 2 GHG emissions, with ESG strategy overseen by the Board - The company employed approximately 13,000 people globally as of year-end 2024, with 7,300 in the U.S. and 5,700 internationally[68] - In 2024, the company's total Scope 1 and Scope 2 GHG emissions were 89,085 metric tons of CO2e, with an intensity of 18.9 metric tons per million dollars of net sales[71] - The overall safety incident rate for 2024 was 1.08 (number of injuries and illnesses multiplied by 200,000, divided by hours worked)[73] Risk Factors The company faces various business, operational, financial, market, legal, regulatory, and cybersecurity risks that could impact its performance Business and Operational Risks Business and operational risks include dependence on the vehicle repair market and franchisee success, intense competition, new product introduction challenges, manufacturing disruptions, and raw material price volatility - The Snap-on Tools Group, which relies on the company's franchisee network, accounted for approximately 39% of consolidated net revenues in 2024, making franchisee success critical[81] - The company's ability to compete depends on its continuous introduction of new products that respond to customer needs and technological changes, such as emerging vehicle drivetrains and ADAS[80][84] - Risks exist from potential disruptions in manufacturing operations and supply chain inefficiencies, including price inflation and shortages of key raw materials like specialized steel alloys and electronic components[90][91] - Failure to protect intellectual property or claims of infringement could adversely affect the business[85] - The company faces strong competition across all market segments[86] Financial and Market Risks Financial and market risks encompass competitive financing, customer credit risk, foreign currency fluctuations, goodwill impairment, credit market volatility, and pension plan asset and obligation volatility - Approximately 29% of revenues in 2024 were generated outside the United States, exposing the company to foreign currency, political, and economic risks[87] - The company's ability to offer competitive financing is a key component of its business, and an inability to do so could adversely impact operating results[103][104] - A substantial amount of goodwill and intangible assets, primarily in the Commercial & Industrial and Repair Systems & Information groups, is subject to impairment risk if market conditions deteriorate[114][115] - The company is exposed to risks from its defined benefit pension plans, where poor investment returns or changes in interest rates could require additional cash contributions and impact financial results[110][111] Legal, Regulatory, and Cybersecurity Risks Legal, regulatory, and cybersecurity risks include compliance with financial services and environmental regulations, product liability claims, and the critical need to protect IT infrastructure from cyber threats - The company depends heavily on its IT infrastructure and is susceptible to cyber attacks[95] - A 2022 cyber incident was managed without significant impact, but future events remain a risk[97] - The business is subject to complex regulations, including those for financial services, franchisee classification, and increasing sustainability/climate change disclosure requirements, which could increase compliance costs[119][122][123] - The company faces risks from product liability claims, litigation, and potential costs related to environmental liabilities and compliance with health and safety regulations[126][127][129] Management's Discussion and Analysis (MD&A) This section provides management's perspective on the company's financial condition, results of operations, liquidity, capital resources, and critical accounting policies Results of Operations (2024 vs. 2023) In fiscal 2024, net sales decreased by 0.5% to $4.71 billion, while operating earnings and net earnings attributable to Snap-on increased, partly due to a legal payment benefit Consolidated Results of Operations (2024 vs. 2023) | (Amounts in millions, except per share data) | 2024 | 2023 | Change (%) | | :--- | :--- | :--- | :--- | | Net sales | $4,707.4 | $4,730.2 | (0.5)% | | Gross profit | $2,377.9 | $2,349.1 | 1.2% | | Gross Margin | 50.5% | 49.7% | +80 bps | | Operating earnings | $1,345.7 | $1,310.4 | 2.7% | | Net earnings attributable to Snap-on Inc. | $1,043.9 | $1,011.1 | 3.2% | | Diluted EPS | $19.51 | $18.76 | 4.0% | - The 0.5% decrease in net sales was due to a $40.6 million (0.9%) organic decline and $5.5 million of unfavorable currency translation, partially offset by $23.3 million from acquisitions[168][185] - Gross margin improved by 80 bps to 50.5%, primarily due to benefits from RCI initiatives, a favorable sales mix towards higher-margin businesses, and lower material costs[186] - Operating earnings included a $22.5 million benefit from legal payments, and net earnings included a $17.5 million after-tax benefit ($0.32 per diluted share) from these payments[169][171] Segment Performance (Full Year) In 2024, Commercial & Industrial and Repair Systems & Information segments achieved organic sales growth, while Snap-on Tools Group experienced a decline, and Financial Services saw revenue and earnings increases Segment Performance Summary (2024 vs. 2023) | Segment | 2024 Net Sales (in millions) | YoY Change | Organic Change | 2024 Operating Earnings (in millions) | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | | Commercial & Industrial | $1,476.8 | 1.3% | 0.1% | $242.1 | 7.1% | | Snap-on Tools Group | $1,989.2 | (4.8)% | (4.8)% | $447.3 | (9.4)% | | Repair Systems & Information | $1,797.9 | 0.9% | 1.0% | $455.2 | 5.1% | | Financial Services (Revenue) | $401.0 | 6.1% | N/A | $276.9 | 2.4% | - Commercial & Industrial: Organic growth was driven by a mid single-digit gain in critical industries, offset by declines in power tools and European hand tools[173][196] - Snap-on Tools Group: The organic decline was due to a mid single-digit decrease in the U.S., partially offset by a low single-digit gain internationally[174][200] - Repair Systems & Information: Organic growth was led by a mid single-digit increase with OEM dealerships, partly offset by lower sales of undercar equipment[175][202] - Financial Services: Originations decreased 4.3% to $1,182.9 million[179] - The increase in operating earnings was modest due to higher provisions for credit losses[207] Liquidity and Capital Resources Snap-on maintained strong liquidity in 2024 with increased cash and robust operating cash flow, continuing its capital allocation strategy through expenditures, dividends, and share repurchases Key Cash Flow Data (2024 vs. 2023) | (Amounts in millions) | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,217.5 | $1,154.2 | | Capital expenditures | ($83.5) | ($95.0) | | Cash dividends paid | ($406.4) | ($355.6) | | Purchases of treasury stock | ($290.0) | ($294.7) | | Increase in cash and cash equivalents | $359.0 | $244.3 | - Working capital increased to $3,027.9 million from $2,710.4 million at 2023 year-end, primarily due to an increase in cash and cash equivalents[246] - The company has a $900 million multicurrency revolving credit facility, which was undrawn as of year-end 2024[256] - The company was in compliance with all debt covenants[259] - On November 8, 2024, the Board increased the quarterly cash dividend by 15.1% to $2.14 per share[269] - Snap-on has paid consecutive quarterly dividends since 1939[269] Critical Accounting Policies and Estimates Management's critical accounting policies involve significant judgment in estimating allowances for credit losses, goodwill impairment, and pension benefits, which can materially impact financial results - Allowance for Credit Losses: Management estimates expected losses on its finance receivables portfolio[280] - A hypothetical 100 bps increase in the allowance ratio as of Dec 28, 2024, would have increased the provision for credit losses by approximately $20.0 million[281] - Goodwill Impairment: Goodwill is tested annually using a discounted cash flow approach[282] - The 2024 test resulted in no impairment[287] - A sensitivity analysis showed that a hypothetical 10% decrease in the fair value of each of the 11 reporting units would not have resulted in impairment[287] - Pension Benefits: Key assumptions include the expected return on plan assets (7.5% for U.S. plans in 2025) and the discount rate (5.6% for U.S. plans at year-end 2024)[288][290] - Changes in these assumptions can significantly impact pension expense and obligations[293] Outlook For fiscal 2025, Snap-on anticipates continued progress on strategic growth initiatives, projecting approximately $100 million in capital expenditures and an effective income tax rate of 22% to 23% - Projected capital expenditures for 2025 are approximately $100 million[297] - The anticipated full-year 2025 effective income tax rate is expected to be in the range of 22% to 23%[298] Financial Statements and Supplementary Data This section presents the company's consolidated financial statements, including earnings, balance sheet, and cash flow data, along with detailed notes on revenue recognition, receivables, and segment performance Consolidated Financial Statements The 2024 consolidated financial statements report $4.71 billion in net sales, $1.04 billion in net earnings, $7.90 billion in total assets, and $1.22 billion in operating cash flow Consolidated Statement of Earnings (in millions) | | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Net sales | $4,707.4 | $4,730.2 | $4,492.8 | | Gross profit | $2,377.9 | $2,349.1 | $2,181.1 | | Operating earnings | $1,345.7 | $1,310.4 | $1,207.2 | | Net earnings attributable to Snap-on | $1,043.9 | $1,011.1 | $911.7 | Consolidated Balance Sheet (in millions) | | 2024 | 2023 | | :--- | :--- | :--- | | Total current assets | $3,989.4 | $3,652.0 | | Total assets | $7,896.8 | $7,544.9 | | Total current liabilities | $961.5 | $941.6 | | Total liabilities | $2,479.8 | $2,451.5 | | Total equity | $5,417.0 | $5,093.4 | Consolidated Statement of Cash Flows (in millions) | | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $1,217.5 | $1,154.2 | $675.2 | | Net cash used by investing activities | ($204.1) | ($331.8) | ($206.2) | | Net cash used by financing activities | ($649.8) | ($572.9) | ($485.0) | | Increase (decrease) in cash | $359.0 | $244.3 | ($22.8) | Note 2: Revenue Recognition In 2024, total revenues were $5.11 billion, with North America and vehicle service professionals being the largest contributors, and most sales recognized at a point in time External Net Sales by Geography (2024) | Geography | External Net Sales (in millions) | | :--- | :--- | | North America | $3,519.4 | | Europe | $722.3 | | All other | $465.7 | | Total | $4,707.4 | External Net Sales by Customer Type (2024) | Customer Type | External Net Sales (in millions) | | :--- | :--- | | Vehicle service professionals | $3,602.4 | | All other professionals | $1,105.0 | | Total | $4,707.4 | Note 4: Receivables Total net finance and contract receivables increased to $2.46 billion in 2024, with the allowance for credit losses rising to $72.4 million and delinquent receivables at $68.1 million Rollforward of Allowance for Credit Losses - Finance Receivables (in millions) | | 2024 | 2023 | | :--- | :--- | :--- | | Beginning of year | $67.8 | $60.9 | | Provision for credit losses | $71.1 | $57.2 | | Charge-offs | ($75.6) | ($58.8) | | Recoveries | $9.3 | $8.4 | | End of year | $72.4 | $67.8 | - Finance receivables are generally written off when an account becomes 120 days past due, absent a repossession[408][455] - As of year-end 2024, total finance receivables past due were $68.1 million, compared to $58.3 million at year-end 2023[462] Note 19: Segments Segment data for 2024 shows Snap-on Tools Group as the largest by external sales, Repair Systems & Information as most profitable, and the United States as the primary revenue contributor Financial Data by Segment - 2024 (in millions) | Segment | External Net Sales | Segment Operating Earnings | Total Assets | | :--- | :--- | :--- | :--- | | Commercial & Industrial | $1,187.6 | $242.1 | $1,230.8 | | Snap-on Tools Group | $1,989.2 | $447.3 | $937.5 | | Repair Systems & Information | $1,530.6 | $455.2 | $1,695.5 | | Financial Services | N/A (Revenue: $401.0) | $276.9 | $2,491.9 | Capital Expenditures by Segment - 2024 (in millions) | Segment | Capital Expenditures | | :--- | :--- | | Commercial & Industrial Group | $19.4 | | Snap-on Tools Group | $39.6 | | Repair Systems & Information Group | $22.2 | | Financial Services | $0.6 | | Corporate | $1.7 | | Total | $83.5 | Shareholder and Market Information This section details the market for the company's common equity, related stockholder matters, and issuer purchases of equity securities Issuer Purchases of Equity Securities In Q4 2024, Snap-on repurchased 315,000 shares for $110.6 million at an average price of $351.04, with $429.4 million remaining under authorized repurchase programs Share Repurchases - Q4 2024 | Period | Shares Purchased | Average Price per Share | | :--- | :--- | :--- | | 09/29/24 to 10/26/24 | 21,000 | $324.26 | | 10/27/24 to 11/23/24 | 157,000 | $350.74 | | 11/24/24 to 12/28/24 | 137,000 | $355.49 | | Total | 315,000 | $351.04 | - As of December 28, 2024, approximately $429.4 million remained available for repurchase under outstanding Board authorizations, including the $500 million authorization from August 2024[148][149]