Insightful analysis and commentary for the US and global equity investor
Contributors: Douglas McIntyre Jon C. Ogg

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Tuesday, August 01, 2006

Snap-On - Is the Value Cavalry Coming?

From Value Discipline

Snap-On Inc (SNA) is one of those great brands that seems to have lived mostly on its legacy, its great brand name, and has shown glacial improvement over the years. Its manufacturing efficiencies seem to be improving after many years of seeming neglect. Lots of room to improve yet. Its dealers seem to experience a lot of turnover, a problem that the company has addressed for some years. The dealer count dropped 5% in 2005, not exactly a glowing endorsement of the model. Because of dealer turnover, the company seems to be in a continuous struggle to find new dealers, and consequently, sales suffer.

SNA manufactures branded hand tools and diagnostic devices and equipment to automobile service professionals. There are over 14,000 products in its catalog.The Snap-On man sells as he always has to auto mechanics who he visits on his regular route. The commercial and industrial group sells directly and through distributors to transportation service, industrial, educational, construction and electrical businesses.

Growing complexity of automotive repair drives the automotive diagnostic business. The company achieves customer brand loyalty by its involvement with mechanic’s training...some 7 of 10 auto mechanics train with SNA equipment and tools.

This is a global enterprise with 63% of sales in North America, 30% in Europe, 1% in Emerging Markets, 4% in Australia/Japan, and 2% in Latin America.

In an amended 13D filing on the company, ValueAct Capital, a group I very much admire, disclosed a 6.6% (3.842 million share) stake in the company, which is up from the 5.4% stake the firm disclosed in the original 13D filing in November of last year. Please see 13_D Tracker. Is this the Value Cavalry that will rescue long time shareholders from the quagmire? Why quagmire?

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