Snap-on Begins Simplification Plan Implementation
3 September 1998
Snap-on Begins Simplification Plan Implementation, Lowers Forecast For Third Quarter Earnings
KENOSHA, Wis.--Sept. 3, 1998--Snap-on Incorporated today announced that it has begun key elements of its previously announced simplification initiative, known internally as Project Simplify.The initiative is a broad program of internal rationalizations, consolidations and reorganizations that will make the company's business operations simpler and more effective, and is expected to generate annual cost savings of $60 million by year-end 2000. The company also announced that it now expects earnings for the third quarter of 1998 (before restructuring and related charges) to be approximately equivalent to the $0.38 per diluted share in the second quarter of this year. Earnings in the third quarter of 1997 were $0.57 per diluted share.
Sales in the 1998 third quarter to date have increased by 10% over last year, and substantial progress has been made on process issues related to the corporation's new integrated computer system. The hardware and software of the system are fully functional, and represent a powerful business tool for Snap-on going forward. Short-term expenses have increased by a greater magnitude than originally anticipated, however, as the company realigns its processes to synchronize with the system. In addition, it has become clear that the beneficial effects of corrective actions require several weeks to fully take hold, thereby extending the period during which higher expenses continue to be incurred. Although there has been steady improvement on the process issues and September is typically the largest sales month of the third quarter, these factors are not expected to make up for the earnings shortfall experienced early in the quarter.
"Demand and our revenue have been strong, despite our internal issues and the uncertainty in the global economy. Our customers are eager to buy Snap-on product. But our internal processes at the moment are making it costly and complicated to serve our customers properly," said Robert A. Cornog, chairman, president and chief executive officer. "These internal process issues are of two types. The first relates to effective utilization of our new enterprise-wide computer system. These issues are being addressed, and should be behind us in the near future. The second are processes that relate to the complexity that has developed in our current business structure; these we are addressing through Project Simplify, which is now under way and which will begin making positive contributions to the bottom line late this year.
"Because of the implementation of some of the activities planned under Project Simplify, and the historical strength of our tool and equipment business in the latter part of the year, we expect our fourth quarter financial performance to approximate the earnings of $0.68 per diluted share that we reported in the prior year's fourth quarter. Looking ahead to 1999, we expect the combination of continued strong revenues, full resolution of computer-related process issues, and the positive contributions of Project Simplify to return Snap-on to its characteristic growth and profitability."
PROJECT SIMPLIFY UPDATE
Project Simplify was recently approved by Snap-on's board of directors. As previously announced, the simplification initiative will include a third quarter charge of approximately $175 million for restructuring and related charges. Some of the actions needed to realize the goals of simplicity, speed and flexibility already have been launched, and implementation will be completed in 12 to 18 months. In addition, as part of Project Simplify, the corporation's organizational structure will be modified. Businesses will be combined into integrated units, with changes in responsibility for all members of the senior management team.
The actions are expected to lead to the closing of 5 plants, 6 warehouses, and 45 to 50 small offices in North America and Europe, representing 13% of the corporation's total square footage and 27% of the total number of facilities; the elimination of over 1,100 positions out of a workforce of about 12,000; and the elimination of nearly 12,000 SKUs, representing approximately 16% of the total. Employees were informed of key elements of the plan and the status of their positions earlier in the week.
North American franchised dealer operation
In order to simplify processes, increase operational effectiveness and reduce costs, the dealer support structure will be flattened, pushing responsibility, accountability and control closer to the customer. The Regional Customer Service Center format will be eliminated. Customer service representatives will remain in, and responsible for, their present geographies, but order entry and related accounting functions will be moved to the four distribution centers.
The number of branches in the U.S. will be reduced to 33 from the present 49; the number of Canadian branches will be reduced to 6 from the present 9. Sixteen U.S. branches will be "megabranches," housing credit collectors, handling bulk promotional product, and displaying and demonstrating equipment; eight of the locations also will house the customer service representatives. The other 17 branches will be satellite operations, housing a branch manager and credit collection support. The average span of control for a field manager (who is responsible for business development for a group of dealers) will increase from 9 dealers per manager to 15.
Business unit consolidation
The under-hood diagnostics equipment business units, including Sun, Balco and CAS, will be consolidated, with coordinated management of products, brands and channels.
U.S. manufacturing operations
Snap-on's equipment manufacturing activities will be rationalized, resulting in factories focused on specific products or capabilities, which will increase both the efficiency and flexibility of production. The air conditioning products plant in Indianapolis will be closed; future production will take place in the Elkhorn, Wisconsin, facility. Wheel balancer production from the San Jose, California, facility will be merged into the company's wheel balancer manufacturing located in Conway, Arkansas. The power tools plant in LeMars, Iowa, will be closed; production will be relocated to other power tools plants.
International
Administrative functions in Europe are being consolidated to eliminate redundancy. In addition, several manufacturing facilities and more than 15 small sales offices and warehouses will be closed. In the Asia/Pacific region three offices will be closed as part of a reconfiguration of the support structure for the area. Operations in Brazil are being restructured to support the corporation's long-term growth plans for Latin America.
Financial services
Snap-on is actively pursuing potential partnerships or joint ventures intended to optimize the returns on its financial services business. It is currently anticipated that a new format could be announced within the next 60 days.
Snap-on Incorporated is a $1.7 billion leading global developer, manufacturer, and distributor of tool and equipment solutions for professional technicians, motor service shop owners, specialty repair centers, original equipment manufacturers, and industrial tool users worldwide. Product lines include hand and power tools, diagnostics and shop equipment, tool storage products, diagnostics software, and other solutions for the automotive service industry.
Statements in this press release that are not historical facts, including statements (i) that include the words "believes," "expects," "anticipates," or "estimates" or words of similar importance with reference to the Corporation or management; (ii) specifically identified as forward-looking; or (iii) describing the Corporation's or management's future plans, objectives or goals, are forward-looking statements. The Corporation or its representatives may also make similar forward-looking statements from time to time orally or in writing. The Corporation cautions the reader that these statements are subject to risks, uncertainties or other factors that could cause (and in some cases have caused) actual results to differ materially from those described in any such statement. Those important factors include the Corporation's ability to manufacture, distribute, and/or record the sale of products during the implementation of a new computer system involving the replacement of hardware and software components and the enterprise-wide linking of all functions; the Corporation's ability to withstand external negative factors including changes in trade, monetary and fiscal policies, laws and regulations, or other activities of governments or their agencies; significant changes in the current competitive environment; inflation; currency fluctuations or the material worsening of the worldwide economic and political situation; and the achievement of productivity improvements and cost reductions. These factors may not constitute all factors that could cause actual results to differ materially from those discussed in any forward-looking statement. The Corporation operates in a continually changing business environment and new factors emerge from time to time. The Corporation cannot predict such factors nor can it assess the impact, if any, of such factors on the Corporation or its results. Accordingly, forward-looking statements should not be relied upon as a prediction of actual results. The Corporation disclaims any responsibility to update any forward-looking statement provided in this press release.