Shares of leading tools, equipment, diagnostics, and repair information systems manufacturer Snap-on (NYSE: SNA) were up 9% as of 2:15 p.m. ET Thursday, according to data provided by S&P Global Market Intelligence, after the company released its financial results for the third quarter.
While Snap-on's sales dip of 1% met analysts' expectations, its earnings-per-share (EPS) growth of 4% and EPS of $4.70 was well above analysts' expectations of $4.56, sending the company's shares higher.
Snap-on continues trudging through a complex environment
Selling 85,000 tools to professionals in over 130 countries, Snap-on serves numerous end markets, from automobile mechanics and technicians to heavy-duty commercial and industrial customers.
Although the company's Q3 earnings were underwhelming at first blush, one catalyst stood out as a rallying point for investors. In its largest segment, Snap-on Tools (sales to auto repair shops), sales slid 4% year over year, but revenue grew 4% on a quarter-over-quarter basis.
This growth is noteworthy to investors because it was the first time in over a decade (outside of 2020) that Q3 sales were higher than Q2, according to CEO Nick Pinchuk. This sequential growth could be an early signal of a potential turnaround for Snap-on as its sales growth stagnated after growing by roughly 5% as recently as 2023.
With many car repair shops currently being what Pinchuk calls "cash rich, but confidence poor," the market has been challenging over the last year. Furthermore, the potential for lower interest leaves many shop owners waiting to spend big-ticket, financed offerings from Snap-on, adding another headwind.
Taking these challenges into account, the company's sequential growth in its Snap-on Tools segment and persistent EPS growth indicate that brighter days are ahead. The stock is trading at a mere 15 times free cash flow, and steady reports like this one can lead to outperformance over the long haul for Snap-on.
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Josh Kohn-Lindquist has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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