SNA Snap-On Inc

Management Discussion

• Net sales in the second quarter of 2019 decreased $3.3 million, or 0.3%, from 2018 levels, reflecting a $15.1 million, or 1.6%, increase in organic sales and $1.1 million of acquisition-related sales, more than offset by $19.5 million of unfavorable foreign currency translation. Snap-on has significant international operations and is subject to risks inherent with foreign operations, including foreign currency translation fluctuations.
• Gross profit in the second quarter of 2019 decreased $13.3 million, or 2.7%, from 2018, including $11.3 million of unfavorable foreign currency effects. Gross margin (gross profit as a percentage of net sales) of 49.8% in the quarter declined 120 basis points (100 basis points (“bps”) equals 1.0 percent) from 51.0% last year primarily due to increased sales in lower gross margin businesses, 20 bps of unfavorable foreign currency effects, and higher material and other costs. These decreases in gross margin were partially offset by benefits from the company’s “Rapid Continuous Improvement” or “RCI” initiatives.
• Snap-on’s RCI initiatives employ a structured set of tools and processes across multiple businesses and geographies intended to eliminate waste and improve operations. Savings from Snap-on’s RCI initiatives reflect benefits from a wide variety of ongoing efficiency, productivity and process improvements, including savings generated from product design cost reductions, improved manufacturing line set-up and change-over practices, lower-cost sourcing initiatives and facility optimization. Unless individually significant, it is not practicable to disclose each RCI activity that generated savings and/or segregate RCI savings embedded in sales volume increases.