Snap On: Keeps on grinding
First position reports earnings and I'm happy
Snap-On just reported earnings yesterday and I’m pleased with the report. My main takeaway is that the trade thesis I’ve had is holding up. As a brief reminder my trade in Snap On has been built on a good risk / reward profile built around a few pillars:
Well managed company with low downside due to strong operating results and market position. Limits downside to $300, or a 3% loss where I put the position on.
Strong possible upside due to a coming turn in their business segments. The company has been muddling through for the past 8 quarters with declining sales as a post pandemic overhang limits new purchases of their tools and equipment. As we reach the end of 2025 and enter 2026 this overhang should start to disappear.
A relative tariff winner vs competition and a beneficiary of the Big Beautiful bill
This quarter reinforces the above thesis.
Key quarter highlight: the Tools Group returned to growth—up 1.7% after four straight quarters of mid-single-digit declines. RS&I (Repair Systems & Information) also grew, while C&I (Commercial & Industrial) fell 8%, which management attributes largely to Liberation Day; results for C&I improved as the quarter progressed.
For six-eight consecutive quarters the story has been the same: some segments grow, others shrink, but overall margins hold steady as efficiency offsets softer sales. Cash continues to build, buybacks tick along, and the dividend yields about 2.75%, so the position of the company as we wait for the turn improves.
Management commentary has been a miss over the past two years as they’ve failed to pinpoint a specific reason for the languishing business. They blame politics and a shaky macro backdrop, and they have been doing that for two years over a myriad of political and macro backdrops: the war in Ukraine, the war on immigration, the election, the Israel-Gaza conflict, the Israel-Iran conflict, inflation, the Democratic-Republican conflict etc. I highly doubt that car mechanics in Wisconsin aren’t buying a new Snap On tool box because of any of these.
I see a different cause: pandemic pull-forward. From 2020–2022, shops and mechanics loaded up on big-ticket gear; now we’re in a cyclical lull. Snap On’s financing data confirm this. New financing originations for high-priced items have been low for the past few quarters. However, most of these finances have four-year loan cycles and most of that equipment should roll off by 2025–early 2026, setting Snap-On up for a rebound.
The “big, beautiful bill” and fading tariff uncertainty as we enter the tail end of 2025 should also help Snap On’s core markets outperform vs the past two years.
These are the ideas that form the core of my trade. Those three catalysts could lift the stock back toward the upper end of its historic $370–390 range, about 30% upside, with clearly defined downside risk.
While I’m sure there are higher beta trades out there, portfolio-wise, the position diversifies me away from high-beta tech into a steadier industrial name while preserving the same upside goal I’m looking for in my trades. The position is fully sized at almost 4% of the portfolio after I added to it on the recent pullback to $306; I’d consider adding further shares if it dipped toward $300 over the coming quarter.