Snap-on holds about 60% of the mobile tool van market and charges a 20-30% premium by selling directly to technicians.
Its revenue is 54% tools, 22% diagnostics and management systems, and 24% equipment.
Matt Fleming says Snap-on looks undervalued and could rerate from its historical 13-to-17-times PE range.
How Snap-on sells $40,000 of tools from a van
Snap-on sells professional tools to people who cannot do their job without them, and it reaches them through a franchised fleet of vans that comes to the bay. A required purchase, control of the last mile and the credit to finance it explain why a century-old tool maker commands a 20 to 30% price premium and rising margins. Fleming argues the market treats Snap-on as an ordinary cyclical industrial and gives it a multiple below comparable names.
Takeaways
Franchisees own the last mile. Snap-on runs 4,700 vans worldwide, some 3,400 in the US, and only 5% are company owned. Operators stop by technicians at least weekly, recommend the tool that solves the problem rather than the one asked about, and earn 30 to 35% gross margins with little discounting.
Technicians must buy their own tools. Technicians in the US supply their own tools. An entry level tech needs 25 to 50 tools costing about $11,000, while 15 to 20 years in means $40,000 worth. Snap-on prices 20 to 30% above competitors and holds about 60% of the mobile van market.
In-house credit keeps the van selling. About 30% of tools sold off the van are financed by Snap-on Credit at an average yield near 18%, with bad debt under 3% and delinquencies between 1.7% and 2%. Snap-on unwound its CIT partnership in 2009 and put the receivables on its balance sheet.
RCI lifted margins for 14 years. Rapid Continuous Improvement, borrowed from the Toyota Production System, took the tools segment from 10% to almost 23% margins over 14 years. Repair Service and Information rose from 19.4% in 2010 to 25.3% in 2024, and Commercial and Industrial added 600 basis points.
Labor supply is the real risk. Fleming worries about whether enough young people enter automotive repair, an issue he compares to long haul trucking. Fewer technicians would mean longer waits and higher repair prices. He is less concerned that automakers build fewer cars, since they are building more expensive ones.
Valuation lags comparable industrials. Snap-on's PE has traded between 13 and 17 times and EV/EBITDA between 8.5 and 12 times on 5, 10 and 20 year bases, implying $270 to $360 a share. Peers like Lincoln Electric and ESAB trade at higher multiples, and only nine analysts cover the stock.
How Snap-on built the van model
In 1920 Joseph Johnson founds the company and invents the modern socket wrench, five handles and 10 sockets that do the work of 50.
In 1930 the Snap-on Wrench Company merges with Blue-Point and becomes Snap-on Tools.
In the 1930s it pioneers time payment, extending credit so technicians could buy tools they could not pay for up front.
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On this episode 2
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In the 1940s it builds direct distribution, putting the seller in front of the technician.
In 1990, with its geography established, it converts to franchising, a capital-light model that outsources the van.
In the 2000s it builds Rapid Continuous Improvement on the Toyota Production System, and Nick Pinchuk becomes CEO in 2007.