Snap-on Updates Third-Quarter Earnings Outlook

KENOSHA, Wis.--Sept. 9, 2002-- Snap-on Incorporated, a global leader in tools, diagnostics and equipment, today announced that it expects net earnings to be in a range of $0.32 to $0.35 per share for the third quarter ending September 28, 2002. Economic weakness, beyond what was anticipated, resulted in lower-than-expected sales and higher bad debts in July and August. The expected third-quarter economic recovery is not materializing in North America or Europe, and planned benefits from such a recovery are now likely deferred until 2003. As a result of the reduced demand, Snap-on is experiencing lower manufacturing efficiencies and is incurring increased expenses to align production with the reduced demand. In addition, Snap-on continues to implement its performance improvement initiatives and is taking steps to further control discretionary costs. Snap-on is continuing to invest in its strategic initiatives, including innovative new products, supply chain improvements and its "More Feet on the Street" dealer expansion program. The combined near-term effect of these circumstances, exacerbated by the third-quarter seasonal sales decline, is compressing margins in the third quarter and is having a greater than expected impact on earnings for the period.

"Our improvement efforts, notwithstanding unexpected challenges, are reinvigorating our company," said Dale F. Elliott, chairman and chief executive officer. "Cash flow is solid, our balance sheet is sound, and we are doing the right things to create shareholder value over time. We are concentrating on what we can control in a difficult economic environment, while continuing to fund the strategic initiatives that will support Snap-on's leadership. The implementation of the Driven to Deliver(TM) business process will lead to a more flexible and responsive organization, and a more profitable company in the future."

Snap-on is driving future performance enhancements

Actions have been taken where economic weakness has slowed product demand. Production is being aligned to current marketplace realities, and will be adjusted as necessary for the remainder of the year.

Progress is being achieved in improving working investment turns. This, along with continued tight control on capital expenditures, is contributing to the solid cash flow. Near term, however, slower sales coupled with efforts to reduce inventory are leading to temporary margin pressure through lower manufacturing cost absorption and unfavorable product mix.

Additionally, in light of the continued uncertain economy, Snap-on is tightening its receivables management and strengthening its reserve positions.

Building on the success of its "More Feet on the Street" dealer expansion program, Snap-on is extending lean business practices, including a focus on working capital management, to its dealers. Improved dealer inventory turns and receivables management are contributing to the lower-than-planned sales volume and higher costs for the company.

"Supporting the focus on lower working capital intensity and our long-standing attention to customer service is the drive to install lean business principles throughout the corporation," said Elliott. "This is not a quick journey, and will not be turned off when economic setbacks occur. The process, while just beginning, is expected to substantially increase customer value and improve return on assets over time. Employees throughout the company are being engaged in this continuous improvement drive, focused on administrative, manufacturing and supply chain processes worldwide."

Snap-on is maintaining focus on successfully completing its previously announced restructuring initiatives. As planned, these actions are expected to be completed by the end of 2002. The company currently anticipates the estimated $40 million in savings this year will be more than offset by the impact of lower-than-expected sales volumes, unexpected costs and higher spending to support innovative new products and other strategic initiatives for profitable growth.

Outlook

In view of the continued difficult economic environment, especially in the industrial marketplace, Snap-on management believes the prudent course is to maintain a cautious approach regarding the expected recovery and its potential benefits.

For the fourth-quarter 2002, Snap-on expects earnings to be in a range of $0.53 to $0.58 per share, reflecting the delayed economic recovery. This forecast is based upon a typical seasonal increase, new products, continued dealer expansion, reduced discretionary spending and cost savings from previous restructuring activities.

In the third quarter of 2001, Snap-on earned $0.6 million, or $0.01 per share, on $508.1 million in net sales. Before special charges of $23.3 million, or $0.40 per share, third-quarter earnings were $23.9 million or $0.41 per share.

In the fourth quarter of 2001, Snap-on had a loss of $17.4 million, or $0.30 per share, on $534.6 million in net sales. Before special charges of $47.5 million, or $0.82 per share, fourth-quarter earnings were $30.1 million or $0.52 per share.