SNAP-ON INC.

TICKER: SNASECTOR: INDUSTRIALSANALYSTS: JAY ROPER, COOPER STROUTRECOMMENDATION: HOLD

INVESTMENT THESIS

SNA is a potential buy High operating margins in all business segments Growth in higher margin products

Why a hold Q3 earnings increased the price 7% Low revenue growth of 3% in last 2 years Skeptical of company growth drivers

STOCK INFORMATION

Market Cap: $9.83 Billion Beta: 1.09 Dividend Yield: 1.54% Current Price: $154.92 52 Week High: $174.75 52 Week Low: $133.09

1-YEAR HISTORICAL STOCK PRICE

ABOUT SNAP-ON Established in 1920

Headquartered in Kenosha, Wisconsin

Developer and manufacturer of tool and equipment solutions for professional tool users

Serves primarily the auto repair industry - also marine, and aviation industries, vehicle manufacturers, utilities, and government and industrial organizations

MISSION

Go directly to the customer

Premium tools

A tool for all industries, all situations

One stop shop

CORPORATE LEADERSHIP

Nicholas Pinchuk

President & CEO since 2007

Experienced in operations, finance, engineering

PRODUCTS22,000 products

Over 2,000 registered patents

Tools, storage, computer software, car lifts, sensors

DISTRIBUTION CHANNELS:FRANCHISING

No brick and mortar stores

Franchising through rolling retail stores

Weekly visits to customers

Ranked 22nd in Entrepreneur's Franchise 500 List

Outside

Inside

DISTRIBUTION CHANNELS:COMPANY DIRECT SALES

Sales representatives sell directly to OEMs and auto repair businesses

Sales of more expensive Snap-on products

Industrial and governmental direct sales

DISTRIBUTION CHANNELS:E-COMMERCE

Reaches customers without a nearby franchise

“Not a significant source of revenue”

DISTRIBUTION CHANNELS:PARTNERS AND OTHER SELLERS

Home Depot, Sears, Costco Stock Car Racing - Team Penske Colleges - Snap-on Certification

Main source of revenue

What Snap-on is known for

This segment is linked to success of the mobile van franchises

Primarily sell to vehicle service and repair technicians

SEGMENTS: TOOLS GROUP

SEGMENTS:REPAIR SERVICES & INFORMATION GROUP

Business operations that serve professional vehicle repair customers worldwide, primarily owners and managers of independent repair shops and OEM dealerships

Variety of productivity and information products Diagnostic products – ex: New thermal imaging

tool Service and repair information products Business management systems and services

SEGMENTS: COMMERCIAL & INDUSTRIAL GROUP

Non auto repair sales

Industry specific tools and software

Serves a broad range of industrial and commercial customers

SEGMENTS: FINANCING

Profits off of lending money to companies with interest

Finance franchise start-ups Finance larger customer purchases

Expanding to become a key part of operations

GEOGRAPHICAL BREAKDOWN Revenue Breakdown

70% North America 18% Europe 7% Asia/Pacific 5% Rest of the World

Sells to 130 countries

600 franchises were added in last 10 years

COMPETITORSCompetes directly with Snap-on’s tools segment and has some overlap in other SNA segments

- 3.5 times the tool segment revenue of SNA- Security, Healthcare- Greater international presence

Competes directly with Snap-on’s tools segment and financing segment

Also distributes tools through rolling shops that visit customers directly

- Offers 13,000 products – vs. SNA’s 22,000 - 1,500 US Franchises – vs. SNA’s 3,345 - No international presence – vs. SNA’s 30% international presence

COMPETITOR COMPARISON

Market Cap: $18 Billion Profit Margin: 8.47% ROA: 5.90% P/E: 18.69 Price/Sales: 1.6 US Market Share of Power Tools:

37.9% $188 Million in Research &

Engineering

Market Cap: $9.2 billion Profit Margin: 14.51% ROA: 11.47% P/E: 17.70 Price/Sales: 2.5 US Market Share of Power Tools: 16.2% $50 Million in Research & Engineering

SNA VS. MACHINERY INDUSTRY

• Not a direct comparison

• Tools is a subgroup of the machinery industry

• SNA sells less sophisticated tools/machinery than a lot of the companies in this industry

GROWTH DRIVERS: INDUSTRY TRENDS

Aging vehicle ages are projected to increase maintenance demand

New vehicles are more complex and new cars will increase the need for diagnostics

GROWTH DRIVERS: STRATEGIES Acquisitions

10/17 - Collision repair, truck alignment company – $155 million Brake equipment company - $41 million

Build in emerging markets New products - ex. diagnostic thermal imager Asia Pacific – establish more of a physical presence

Releasing more products for specific industries 929 new aviation products last year

RISKS Low growth in last 2 years - especially international

“The cost and penalties for failure can be high” Number of franchises outside the U.S. have grown only half as fast as U.S.

franchises

Rising steel prices – require a raise in tool prices

Difficult macro environment for machinery growth in areas like oil and gas, military and the Middle East - lowers SNA’s Commercial & Industrials Group sales

FX risk – 10.2 million of unfavorable currency translation so far 2016 – mostly from Brexit

FINANCIALS:NINE MONTHS ENDED

Commercial & Industrial Tools Repair Systems & Information Financial Services

Revenue $645 million $1,216 million $680 million $270 million

Operating 14.4% 17.1% 25.0% 71.0% Earnings

Earnings -2.7% 12.8% 7.0% 17.5% Change from Q3 2015

FINANCIALS:REVENUE BY SEGMENT

FINANCIALS:EARNINGS STATEMENT

• 3% top line growth

• Increasing profit margins

• Strong increase in bottom line

FINANCIALS:BALANCE SHEET• Overall strong balance sheet

• A- debt rating allows for low cost of debt

FINANCIALS:CASH FLOWS

• Growing finance segment

DCF: ASSUMPTIONS

DCF: OUTPUT

Recommendation: HOLD

Thank you Questions?

Investment Thesis

Distribution Channels

Segments

Competitors

Geographical Breakdown

Growth Drivers

Risks

Financial Statements

DCF Assumptions

Extra:More Info on Franchises

Other Growth Drivers

Debt Payments

Q3 Earnings

MORE ABOUT FRANCHISING

Snap-on profits off of products and services sold, monthly fees, and its credit program

Q3 2016 EARNINGS

Bottom Line Beat EPS of $2.22/share vs. Expected $2.15/share

Top Line Miss Reported $834.1 million in Revenue vs. Expected $847.8

Result Stock rose 7%

OTHER GROWTH DRIVERS:

DEBT PAYMENTS Cost of debt estimated at 4.5% Strong A- credit rating No concern over future debt payments Recent acquisition of Car-O-Line will be purchased through cash and

commercial paper