The sales in the Snap-on Tools Group increased 7.5% Y/Y to 520.6 mn. With lockdown curbs easing in China, revenue growth in international business should improve in the back half of the year. Shanghai is a significant C&I business centre and a key transportation hub for the company’s factories in China. The C&I segment’s international business was the most impacted in the quarter due to the 2-month lockdown in Shanghai city. Despite the headwinds in the C&I segment’s international operations, the company grew its sales in the quarter. The solid gains in general industry and international aviation businesses more than offset the lower sales from the military businesses as we predicted in our previous article. The organic growth was primarily due to the double-digit sales growth in the European-based hand tools business and Asia Pacific operations and mid-single-digit growth in the Critical Industries (CI). The Commercial & Industrial (C&I) segment revenue grew 2.5% Y/Y to $359.1 mn reflecting 7.6% organic growth, partially offset by $16.7 mn of unfavourable currency translation. These factors led to high single-digit organic sales growth in Q2 FY22 across the business portfolio. To offset the inflationary environment, the company has been increasing prices, however, the majority of the sales contribution came from volume growth compared to the price increases. In addition, the demand for new and used cars remained strong. The Auto-repair market remained positive in the last quarter, with key indicators such as spending on vehicle maintenance and repairs and mechanic wages showing a positive trend in the quarter. However, the operating margin improved 100 bps Y/Y to 25.5% due to savings from the Rapid Continuous Improvement initiative, and lower costs associated with stock-based expenses, resulting in 13.6% Y/Y growth in the diluted EPS during the quarter. The gross margin in the quarter declined 150 bps Y/Y to 48.7% due to higher material and other costs, partially offset by increased sales volume and pricing actions. The organic sales growth resulted from high single-digit organic growth across the company’s segments. The sales in the quarter reflect 8.4% organic growth, partially offset by $32.4 mn of unfavourable foreign currency translation. The diluted EPS in the quarter was up 13.6% Y/Y to $4.27 (vs. The net sales in the quarter grew 5.1% Y/Y to $1.14 bn (vs. recently reported its second quarter FY22 financial results that were better than expected. Additionally, the company’s Rapid Continuous Improvement (RCI) should support the margin growth of the company. The company’s margin prospects also look good and as the commodity prices stabilize, I believe the company's margins should start improving. As the vehicles get more complex, the shop owners rely on companies like Snap-on for repair assistance, and Snap-on provides service and repair information to its customers. There are a variety of drive trains present in the market, such as the internal combustion engine, plug-in electric, and full electric, which gives Snap-on the opportunity to grow its revenue by introducing new tools to the market that solve the technicians' and repair shop owners' problems. To support the strong demand in the end-market the company plans to expand its hand tools plant in Milwaukee. Snap-on’s ( NYSE: SNA) sales benefited from the healthy demand in the end-market as the volumes in Q1 FY22 improved.
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