Snap-On Inc.

founded: 1920

Contact Information:

headquarters: 10801 corporate dr. pleasant prairie, wi 53158-1603 phone: (262)656-5200 fax: (262)656-5577 url: http://www.snapon.com

OVERVIEW

Snap-On, Inc. is a leading U.S. manufacturer and distributor of hand tools, power tools, shop equipment, and automotive diagnostic equipment. The firm, a member of the Standard & Poor's 500, targets the industrial, automotive, and aerospace industries, and its clients typically include automotive manufacturers, car mechanics, and various government operations. To sell its products, Snap-On uses franchised truck drivers-nearly 4,000 of them-to purchase tools and equipment at wholesale prices and then market and deliver products directly to clients. Because Snap-On trucks are stocked with a wide variety of the firm's merchandise, customers are able to take delivery of many of their tools and equipment immediately upon purchase.

COMPANY FINANCES

Sales for Snap-On, which totaled $1.48 billion in 1996, grew steadily throughout the late 1990s, reaching a peak of $2.17 billion in 2000. Earnings growth proved less consistent. After climbing from $131.5 million in 1996 to $150.4 million in 1997, earnings plummeted in 1998 due to weak sales in Asia, where the economy had collapsed, as well as problems Snap-On experienced while implementing a new computerized operations system. That year, the firm posted a $4.8 million loss. Earnings recovered in 1999 to $127.2 million, and they grew to $148.5 million in 2000. Both sales and earnings dropped in 2001, however, to $2.9 billion and $19 million, respectively, due to a particularly weak North American economy. As a result, earnings per share, which had reached a high of $2.53 in 2000, fell to 33 cents in 2001. Stock prices, which ranged from a high of $46.44 per share and a low of $25.50 per share in 1998, ranged from a high of $34.21 per share to a low of $21.65 per share in 2001.

ANALYSTS' OPINIONS

Many analysts became concerned about Snap-On's outlook in mid-2001, when company officials revealed that third quarter earnings would be roughly 68 percent lower than in the third period of the previous year. To bolster earnings, the firm announced its intent to reduce its workforce by 4 percent and to undertake measures to improve efficiency in both domestic and international operations. The plan seemed to reassure investors, and stock prices rose 4.6 percent on the day following the news. According to an August 2001 issue of The Business Journal-Milwaukee, many analysts believed the firm's earnings per share would recover in 2002.

A member of Entrepreneur's Franchise 500, Snap-On was lauded by many industry publications for the strength of its franchised operations . In 2002, Entrepreneur magazine ranked Snap-On 14th among its list of the top 500 franchise opportunities. In fact, the firm had placed among the top 20 of the Franchise 500 since 1994. In 2002, the Franchise Times ranked Snap-On 32nd on its list of the top 200 franchises.

HISTORY

After coming up with an idea for an "interchangeable sockets," Joe Johnson and William A. Seidemann created Snap-On in 1920. Interchangeable sockets, which allowed multiple sockets to be "snapped on" to various handles, proved more efficient than the one-piece socket wrenches traditionally used by mechanics. To sell this product, as well as several others, the partners demonstrated the many uses of Snap-On tools directly to potential customers. Snap-On published its first catalog, listing 50 items, in 1923. More than 150 sales representatives were marketing and distributing Snap-On tools by 1925. Two years later, international operations were launched when Snap-On opened an office in Montreal. The firm created a Canadian subsidiary to oversee operations there in 1931. Sales reached $1 million in 1935, and Snap-On conducted its initial public offering six years later.

By 1945, all salespersons carried stock and made immediate deliveries to their customers. Eventually, Snap-On decided to convert its direct sales staff into a fleet of independent representatives serving assigned territories. International expansion continued in the 1950s, with the creation of a subsidiary in Mexico. The firm also diversified by acquiring specialized companies which manufactured diagnostic tune-up and maintenance equipment for the automotive industry. In 1964, the firm replaced its punch-card order processing equipment with an IBM computer-based system. Direct sales operations expanded into the United Kingdom in 1965. That year, Snap-On secured a patent, after years of legal wrangling, for its "flank drive" design, which improved the grip of wrenches operating in high torque conditions. The firm had developed the flank drive wrench in response to grip problems the U.S. Navy had experienced while removing small fasteners from aircraft.

Growth in the 1970s was substantial. Compared to $66.2 million in 1969, sales reached $100 million in 1972, and grew to $373.6 million in 1979. Over the same time period, net income jumped from $6 million to $42.6 million. Sales representatives numbered more than 3,000 by the middle of the decade. In 1978, the New York Stock Exchange began listing Snap-On stock.

Recessionary economic conditions in the 1980s prompted a modest fall in both sales and profits. Snap-On launched cost cutting measures and stepped up marketing efforts. As a result, growth resumed. NASA named Snap-On the exclusive supplier of tools for the space shuttles. The firm purchased a 34 percent stake in engine diagnostic and wheel service equipment Balco, Inc. in 1984. Snap-On acquired the remainder of Balco for $21.2 million in 1991. It was at this time that Snap-On began converting its independent sales force network into a franchise network. The firm also centralized distribution operations, condensing the operations of 51 warehouses into four regional distribution facilities. The company itself was reorganized into three segments: Finance; Manufacturing and Technology; and Marketing and Distribution.

Snap-On expanded into Japan in 1992. The following year, sales exceeded $1 billion for the first time. In an effort to broaden its offerings further, the firm began to search for new markets. To this end, it acquired diagnostics equipment maker Sun Electric Corp. in 1992. The following year, the firm added industrial hand tools maker J.H. Williams, industrial power tools maker Sioux Tools, Inc., and vehicle lift manufacturer Wheeltronic Ltd. to its mix. In 1995, Snap-On acquired Eurotools S.A., its first hand tool manufacturing facility in Europe. The firm also created an intranet that allowed dealers electronic access to inventory, prices, and information on new products. The new system also allowed dealers to place orders and file sales reports electronically.

The purchase of the automotive service operations of FMC in 1996 allowed Snap-On boost its under-car equipment operations. That year, the firm also acquired Automotive Data Solution, a telephone-based diagnostic service for car mechanics. Thomson Corp.'s Mitchell Repair Information and Snap-On created Mitchell Repair Information Co., one of North America's largest vehicle repair information providers, in 1997. That year, Snap-On entered the collision repair industry for the first time with the purchase of Nu-Tech Industries Inc. Additional acquisitions included a German wheel balancing equipment manufacturer and an Italian vehicle lift manufacturer.

In 1998, for the first time in its history, Snap-On moved into the retail market by developing tools for Lowe's Home Improvement Warehouse.. Problems with the adoption of a new computer-based inventory and order processing system that year undercut earnings. Weak Asian sales also posed a problem. To improve its performance, Snap-On eliminated roughly 4 percent of its sales force. It also shut down a handful of manufacturing plants and warehouses, discontinued certain products, consolidated related businesses, and shuttered several sales offices in both North America and Europe. Eventually, the computer glitches were resolved, and Snap-On was able to launch extensive online operations, including the sale of its tools on the Internet. Additional layoffs were announced in 2001, after weaker demand hurt sales. In 2002, Snap-On was ordered to pay SPX Corp. $44 million in damages related to a patent infringement case.

FAST FACTS: About Snap-On Inc.

Ownership: Snap-On Inc. is a public company traded on the New York Stock Exchange.

Ticker Symbol: SNA

Officers: Robert A. Cornog, Chmn.; Dale F. Elliott, Pres., CEO, and Dir.; Donald S. Huml, SVP and CFO; Richard V. Caskey, VP Marketing; Alan T. Biland, VP and CIO

Employees: 13,500

Principal Subsidiary Companies: Snap-On Inc. operates an extended network of subsidiaries, dealers, and representatives throughout North America, including Snap-On Tools Co.; mechanical collision repair equipment maker Nu-Tech Industries, Inc.; torque measuring products and calibrating equipment maker Consolidated Devices, Inc.; mechanical collision repair equipment maker Hein-Werner Corp.; Mitchell Repair Information Co., which handles vehicle repair information and business management systems; industrial power tool maker Sioux Tools, Inc; Snap-On Industrial Group; Snap-On/Sun de Mexico S.A. de C.V.; Snap-On Tools of Canada Ltd.; Snap-On Tools Puerto Rico; Snap-On Diagnostics; and Wheeltronic Ltd., which manufactures vehicle lifts. Snap-On also operates subsidiaries in South America, Europe, Asia, and Africa.

Chief Competitors: Competitors to Snap-On Inc. include Black & Decker, Stanley Works, and other tool and equipment manufacturers and distributors.

STRATEGY

Direct contact with customers has been a key component of Snap-On's marketing strategy since its inception. Recognizing the importance of this contact, Snap-On asked its salespersons to increase their contact with clients from once a month to at least twice a month in 1962. By the mid-1980s, some dealers were visiting customers weekly. A typical Snap-On van carried $50,000 to $200,000 of inventory. Along with simply selling products, Snap-On representatives also offered extra services, such as free Snap-On tool and equipment cleaning every six months, to their clients. Along with impressing customers, services like this allowed Snap-On dealers to identify any tools or parts that needed replacement. Due to the services it offered, as well as the strong relationships its dealers had forged with clients, the firm was able to avoid lowering its prices despite increased competition from companies like Sears, Roebuck & Co., Mac Tools (a subsidiary of Stanley Works), and several Japanese firms.

Also instrumental to the firm's success were its 350-page catalogs. By the mid-1980s, Snap-On dealers were distributing roughly two million catalogs each year, and they found that when clients experienced mechanical difficulties, they would quite often look through the catalogs for a solution.

In the mid-1990s, Snap-On began to examine the ways in which technology could allow dealers to offer additional services to customers. In 1998, the firm began working on an e-commerce strategy with the goal of giving customers 24-hour-a-day access to their dealers. According to a July 2000 article in Forbes, the firm's new e-commerce strategy team "figured they could use the interactivity of the Internet to create a Web site that could do most of the things a sales rep did: help customers find the right socket wrench for a particular job, tell them what was in stock and when they could have it, recommend alternatives to out-of-stock products." By the end of 2000, nearly all of the firm's 4000 dealers had been connected to the Internet and more than 14,000 products were available for sale on the firm's Web site. Within a year, more than 10,000 orders had taken place online.

INFLUENCES

The late 1980s were marred for Snap-On by the growing number of lawsuits filed by former and current U.S. dealers, who alleged things like misrepresentation of potential profits and various contract violations by Snap-On. Other suits claimed than Snap-On pressured dealers to extend credit to clients. Between 1989 and 1991, the firm paid $40.7 million in settlement costs. This problem prompted the firm to begin enrolling all new U.S. dealers as franchisees in the early 1990s. In addition, existing dealers were given the opportunity to apply for a franchise as well. Along with gaining more control over its dealer network, Snap-On believed that converting to a franchise program would allow for more cohesive marketing efforts and a more unified brand image.

PRODUCTS

Snap-On's products include wrenches, sockets, pliers, ratchets, screwdrivers, and other hand tools, as well as pneumatic (air) and corded (electric) drills, sanders, polishers and other power tools. The firm also makes wheel balancing and alignment equipment for cars, tool chests and cabinets, and engine and emission analyzing equipment.

GLOBAL PRESENCE

International expansion for Snap-On first took place in the 1920s, and it continued throughout the firm's development. By the early 1990s, Snap-On subsidiaries operated in Australia, Canada, Germany, Japan, Mexico, the Netherlands, and the United Kingdom. International sales accounted for 17 percent of total revenues.

CHRONOLOGY: Key Dates for Snap-On Inc.

1920:

Snap-On is founded

1923:

The first Snap-On catalog lists 50 products

1941:

Snap-On completes its initial public offering

1945:

Via a fleet of vans, all Snap-On sales reps transport stock to their customers, who can take immediate delivery of the products they order

1965:

Snap-On secures a patent for its ""flank drive" wrench design

1972:

Sales reach $100 million

1978:

Snap-On lists its stock on the NYSE

1991:

Snap-On creates its franchise system

1993:

Sales exceed $1 billion for the first time

2000:

Snap-On is ordered to pay SPX Corp. $44 million in damages related to a patent infringement case

In 2002, European operations include Sweden's Bahco Group AB; Italian wheel service equipment manufacturer G.S. S.r.l; Spain-based automotive and industrial hand tools maker Herramientas Eurotools, S.A.; Hofmann Werkstatt-Technik and Hofmann Sopron Kft, two automotive equipment manufacturers based in Hungary; Snap-On Equipment France; Netherlands-based Snap-On Europe Holding B.V.; United Kingdom-based Snap-On Tools Ltd.; Snap-On Tools Germany; and Italian vehicle and motorcycle lift manufacturer Texo.

SNAP-ON STRUGGLES WITH NEW TECHNOLOGY

When Snap-On paid $54 million for a new enterprise software system, it expected to see an immediate upturn in productivity. However, several glitches with the new system resulted in thousands of delayed orders, which cost the company an estimated $50 million in sales in 1998.

In Africa, the firm operated Africa Snap-On Tools/PST Africa (Pty.) Ltd. Asian operations included Snap-On Tools (Australia) Pty. Ltd.; Snap-On Tools China; Snap-On Tools Japan, K.K.; Snap-On Tools Korea Ltd.; Snap-On Tools New Zealand, and Snap-On Tools Singapore Pte Ltd. In South America, Snap-On Inc. also operated Sun Electric do Brasil.

SOURCES OF INFORMATION

Bibliography

copple, brandon. "it's a snap." forbes, 17 july 2000.

"genuine parts, snap-on form alliance." aftermarket business, february 2002.

itoi, nikki goth. "metamorphosis of the middleman." industry week, september 2001.

fellman, michelle wirth. "snap out of it." marketing news, 28 september 1998.

"midwest 100 regional stock analysis." the business journal-milwaukee, 10 august 2001.

"snap-on inc." international directory of company histories. detroit: gale research, 1993.

snap-on inc. home page, 2002. available at http://www.snapon.com.

"snap-on's franchise opportunity recognized in recent rankings." business wire, 25 march 2002.

For an annual report:

on the internet at: http://www.snapon.com/investor/annual01/2001_snapon_annual_report.pdf

For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. snap-on inc.'s primary sics are:

3411 metal cans

3423 hand & edge tools

3546 power driven hand tools

3825 instruments to measure electricity

3829 measuring & controlling devices, not elsewhere classified

6719 holding companies, not elsewhere classified

also investigate companies by their north american industrial classification system codes, also known as naics codes. snap-on inc.'s primary naics codes are:

332116 metal stamping

332212 hand and edge tool manufacturing

332431 metal can manufacturing

333991 power-driven hand tool manufacturing

334515 instrument manufacturing for measuring and testingelectricity and electric signals

334519 other measuring and controlling device manufacturing

551112 offices of other holding companies