Snap-on Inc. (SNA - Analyst Report) reported strong third-quarter 2014 results with healthy growth in net sales and earnings. Net income in the reported quarter increased to $103.7 million or $1.76 per share from $84.6 million or $1.43 per share in the year-earlier quarter. Meanwhile, earnings beat the Zacks Consensus Estimate of $1.61 per share by 9.3%.

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Management’s focus on enhancing van network, extending service to critical industries, strategic acquisitions and expanding in emerging markets have benefited the company.

Revenues

Net sales in the third quarter increased 7% year over year to $806.3 million. Excluding acquisition related expenses of $5.6 million and favorable foreign currency translation effect of $0.7 million, organic sales rose 6.2% year over year. The total quarterly revenue was also well above the Zacks Consensus Estimate of $797 million.

Segment Results

The Commercial & Industrial Group segment sales increased 8.6% year over year to $298.8 million on higher demand in critical industries and European hand tools business. Organic sales also increased 9.4% year over year.

The Snap-on Tools Group segment revenues improved 6.4% year over year to $355.0 million, driven by significant gains in both the U.S. and international franchise operations. Meanwhile, organic sales were up 6%.

The Repair Systems & Information segment recorded a sales increase of 7.3% year over year to $271.2 million, primarily on higher sales to OEM dealership service and repair shops and increased sales of diagnostic and repair information products to independent repair shop owners and managers. This increase was partially offset by lower sales of undercar equipment, attributable to weakness in eastern Europe. Meanwhile, organic sales were up 4.4% year over year.

The Financial Services business reported revenues of $53.6 million compared with $45.1 million in the year-ago quarter. Operating earnings at the segment totaled $37.7 million as against $31.6 million in the prior-year quarter.

Margins

Gross profit for the quarter was $393.9 million versus $364.3 million in the prior-year quarter. Snap-on registered consolidated operating earnings of $130.6 million or 16.2% of total revenue in third-quarter 2014 compared with $111.3 million or 14.8% of total revenue in the year-earlier quarter.

Gross margins expanded 48 basis points (bps) to 48.9% compared with 48.4% reported in the prior-year quarter. Operating margin improved 142 bps to 16.2% as against 14.8% in the year-ago quarter. 

Balance Sheet & Cash Flow

Cash and cash equivalents totaled $124.7 million as of Sep 27, 2014 compared with $217.6 million at the end of 2013. The company had a long-term debt of $860.5 million versus $858.9 million at the end of 2013. Net cash provided by operating activities increased to $88 million in the reported quarter from $84.3 million in the prior-year quarter.

Outlook

Snap-on revised its guidance for fiscal 2014. The company now expects to incur capital expenditures in the range of $75–$80 million in 2014 compared to $70–$80 million stated earlier. Of this, Snap-on has already spent $63.3 million till the end of the third quarter of 2014.

The company also plans to maintain focus on emerging markets, expand its presence in new industries, enhance its mobile tool distribution network and gain traction in the vehicle repair garage market going forward.

Snap-on currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the sector that can be considered at the moment include Middleby Corp. (MIDD - Analyst Report), Barnes Group Inc. (B - Snapshot Report) and Nordson Corporation (NDSNte - Snapshot Report). While Middleby sports a Zacks Rank #1 (Strong Buy), Barnes Group and Nordson carry a Zacks Rank #2 (Buy).