Operator:

Good day and welcome to Snap-on the Snap-on Incorporated 2024 Second Quarter Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's remarks, there will be an opportunity to ask questions. [Operator Instructions] Please note, that this event is being recorded. I would now like to turn the conference over to Sara Verbsky, Vice President Investor Relations. Please go ahead.

Nick Pinchuk:

Thanks, Sara. Good morning, everybody. As usual, I'll start with the highlights of our second quarter and I'll provide my perspectives on the results on our markets and our path ahead. After that, Aldo will give you a detailed review of the financials. Our second quarter -- of course, there were challenges uncertainty remain prominent among our technician customers but our Repair Systems & Information, or RS&I Group, with repair shop owners and managers and our commercial and industrial or C&I group, enabling critical tasks outside the vehicle shop. They both progressed very nicely, taking full advantage of their opportunities and balancing the tech turbulence and tools. So our results in the second quarter are clear and unmistakable demonstration that Snap-on's principal value creating mechanism, observing work right in the workplace, using the insights learned to create products that make critical tests easier and more efficient, that works across many industries and in many environments. It highlights that our enterprise is not dependent on a particular customer base. We believe, it shows that as we move forward, reaching higher we do so with greater resilience and with expanding possibilities and with an enterprise that's broader and stronger than ever before. Like most quarters, we did have headwinds, we had opportunities with disparities from group to group and geography to geography. North America remained mixed with significant gains in critical industries. Internationally, our consolidated results were varied but reflected overall positive. Europe showed some signs of recovery among the scattered economic disruptions from region to region and the Asia Pacific markets registered progress overcoming the delayed recovery in China. So now, let's talk about the results. Second quarter sales of $1179.4 million was slightly down from the $1191.3 million of last year. on an organic basis, excluding $5.7 million in unfavorable foreign currency and $7.3 million from acquisitions, our sales were lower by 1.1%. The OpCo operating income or OI margin for the full quarter was 23.8%, up 50 basis points. Now with that said, that level included the benefit of a final payment from our recent legal win, excluding that addition, the OI margin was 22.8%, down from 2023 but still among our very best to pass the only by the recent -- by the record-setting second quarter of last year. For financial services, the OI grew to $70.2 million from the $66.9 million recorded in 2023. A number that when combined with our OpCo results, raised the consolidated OI margin to 27.4%, up 60 basis points over the 26.8% of 2023 and EPS, it was $5.07 which included a benefit from the legal payment of $0.16. Again, excluding that legal item, EPS was $4.91 still above last year and representing a new Snap-on level for any quarter, strength and progress against the wind. So those are the overall numbers. Now for a view of the market. The second quarter once again highlighted that the opportunities in automotive repair, they continue to be favorable, marked by the ever-expanding complexity of design, new and diverse powertrains. More interlocking systems to advance driving autonomy, arrays of drive by wire sensors, new body materials and an aging car park now averaging 12.6 years. The opportunity in vehicle repair exists industry-wide and they appear to be unwavering. The vehicle OEMs, the dealerships and the independent shops recognizes the positive trend and they continue to invest in tools and equipment that will expand their capabilities to support the influx of new models and the ever rising complexity of repair. And in the quarter, our RS&I Group expanded our reach into OEM dealership -- into OEM dealership programs and strengthened our position in independent garages with our repair management software packages and with great new hardware products. So the possibility, with repair shop owners and managers are strong, the outlook looking forward is quite positive and Snap-on is well positioned to seize the opportunities. Now let's shift to the technicians. These are the folks who turn the wrenches to make the diagnosis and execute the repairs. Again this quarter, I had multiple occasions to meet with the franchisees, the garage owners and the tech and it reconfirmed that the shops and the technicians are prospering. The micro data says it's true, repair hours are up. Tech wages are healthy. The demand for tech is strong and the number of techs are increasing. The number of tech is increasing. It makes sense, new systems, the rising complexity, the aging car park makes what the techs do more difficult and more valuable. So the economic trajectory of vehicle repair is quite positive. It's an attractive place to be. But it's also clear that while the techs are busy and have cash, their confidence in the way forward is still poor. Every day there is bad news. Two wars with no end in sight, the border unsettled, the shipping lanes disrupted, tit-for-tat with China, lingering inflation and the election, the election seems to get more unpredictable with every morning news cycle; the hits just keep on coming for bad news for breakfast. It's almost like the grassroots technicians have a fear of what may happen. And paraphrasing the movie Dune fear is the outlook killer. The franchisees also confirmed to us that with general uncertainty, the techs are leaning toward purchases that provide quick paybacks, while making the work easier right away. They're kind of cool on longer-term bigger ticket items. And knowing that, the Tools Group continues to focus on near-term product development, manufacturing changes and selling efforts that match those preferences. So now let's talk about the critical industries, where Snap-on rolls out of the garage, solving tasks of significant consequence. This is where the C&I group operates. And it's our most significant international presence. The area where we're most subject to global headwinds but the news was still reasonably encouraging. For the sectors, the critical industries kept rising in the period, the military, aviation and education segments led the way. For geographies, Europe was mixed. Several countries in recession and the ongoing impacts of the Ukraine war. Asia Pacific will also remain mixed. China was weak, driven by delayed financial recovery and Southeast Asia, again, had its difficulties. But -- both regions for C&I and for the corporation in total, were positive in the quarter despite the variations. Now speaking more - now I'd like to speak more about the critical industries, the demand for customized solutions to drive reliability and productivity keeps rising. And C&I continues to show significant and broader advantage in that arena and we believe there's more coming. So that's the market, vehicle tech, cash-rich but confidence poor. Preferring quick payback products. Repair shop owners and managers moving upward to match the car park and the critical industry is booming outside the garage. In C&I, so let's cover the groups now. In C&I, sales were $372 million representing an organic sales gain of 1.2%, excluding $7.3 million of acquisition-related sales and $3.8 million of an unfavorable foreign currency. Higher activity with customers based in those critical industries and the gains in Asia -- and a gain in Asia that defies the turbulence more than offset declines in our power tool and European-based hand tool operations. From an earnings perspective, C&I OI of $62.2 million, improved $4.1 million or 7.1% above last year. And the OI margin, it was 16.7%, up 70 basis points representing a new record for that group; gangbusters -- gangbusters for those guys. And the big driver was our International division. Continuing its upward trajectory with a double-digit rise and very strong profitability. About 18 months ago, we expanded our capability to make [Indiscernible] easier outside the garage by adding another building for industrial custom kitting, serving a range of critical segments and it's paid off -- it's paid off big. Since then, that business has been on a tear, [Indiscernible] cranking out more and more bespoke product bundles, sophisticated solutions like our automated tool control units that have become the standard for a range of industries. Custom kit offerings aimed at specific applications and at making the critical work easier and more reliable. It's driven some nice gains all around the world. And we believe we see many more possibilities in that arena. So we continue to invest in critical industries, expanding capabilities like in our custom tool machine in Kenosha, producing low volume, high reward items, for the most essential tasks. For example, visiting an oil drilling site. We saw that adding a section of pipe on the rigs requires technicians to move around the circumference constantly repositioning the turning tool. It's a slow and clumsy and imprecise effort. Our custom team tackled the problem designing both, a new bespoke – both a new bespoke wrench -- both designing a new bespoke wrench, specifically for the task and enabled by our new Kenosha machine shop configured a special machining process to produce it and it all worked. The special oil rig pipe wrench, greatly reduced the rework associated with misalignment and substantially decreased the task time, getting the job done more efficiently and more reliably and along the way, expanding the Snap-on reputation in the critical oil and gas sector. Also in the quarter, we introduced a new line of 14.4-volt micropower drills aimed specifically at diverse applications in aviation and general manufacturing. Test in all sectors vary from inserting wood screws to drilling accurate holes in airframe, to high volumes on production lines. To span the variety, each tool in the new line, and there is a range of them, is set to a different RPM range, enabling the tech to fit the speed to the job, substantially reducing rework or irreversible damages -- damage. The drill -- it's also designed for 2 operating states, the first slower. Allowing the tools to bite into the materials, securing a position for the serious drilling and the second stage, performing that serious drilling at the predetermined RPM, making a quick and clear cut. Our new industrial micro drills, 2-stage design, matched to the task, bringing new levels with accuracy, consistency and reliability to the work, it's a superior tool for the very task of those sectors and the customers have noticed. C&I in the quarter, launching customized solutions, maintaining its strong momentum in the critical industry, extending out of the garage and reaching new heights in profitability. Now for the Tools Group. Sales in the second quarter are $482 million included an organic decrease of 7.7%. The group's OI margin in the period was 23.8%, down 250 basis points due to the lower volumes. But gross margins held down 20 basis points, almost flat. The benefits of new product, manufacturing efficiencies and rapid continuous improvement, or RCI, is written all over those numbers. And during the quarter, we continue to focus our product development, redirect our plans and guide our selling programs toward innovative quick payback solutions that drive productivity. A cornerstone for the pivot is rooted in customer - in our customer connection, standing side-by-side with the technicians, observing the work, witnessing the difficulties of modern and complex repair and using the insights gained to create a tool that makes especially difficult tasks much easier. In the second quarter, those insights lead the Tool Group to design a new torque adapter for use on Ford E-Series commercial vans. The standard procedure for basic brake repair on that model, requires the rear caliper bolts to be torqued at over 160-foot pounds, not so easy. And the task made doubly difficult because the bolt is obstructed, making it impossible to access the area with standard tooling without removing auxiliary parts, a big [tie] (ph) meter. So we've specifically configured a 21-millimeter, 12.6 inch flat adapter with a half inch hex drive to make the work easier and to specification. The device nestles perfectly. Between the particular obstructions on the model, engaging the fastener, turning a time-consuming task into one of just seconds and freeing the tech up to tackle the next repair order. It's made in our Elizabethton, Tennessee plant and it brings great value to the techs working on the E-Series. And you know there's a lot of them. Another example is the still observed when we observed when removing a canister tap that houses the fuel filter on 4 Super Duty trucks. Access to the 32-millimeter hectare on top of cap is impeded by other components. Standard part or sockets are out. Seeing the problem. Our team created a special low-profile socket, tapered, gradually, just the slide into position under the blocking hoses and then using a standard ration and extension, easily removing the clamp of a tap [ph], complete the repair, a complicated [ph] -- and complete the repair, a complicated job made much easier. Produced in our Milwaukee plant, it's another quick buyback item that makes a substantial difference and the text a lot of it. A final example comes from observing technicians walking to and from the work piece; back and forth from their work to achieve standard flyers for basic test. A compact design seemed to be the solution. So we expanded our triple joint flyer line to develop a small 4.5-inch fire set with 3 models, a combination along those in a flank drive slip joint version for versatility and they were all pocket size to be always at the ready, call it out of your pocket and you're ready to go. And all designed to allow immediate access to remove low torque in place to pull through users, to adjust hoses or provide some additional gripping leverage for basic repairs or just inspections. The new units save steps and make work easier in tight spaces and they're offered in 2 handle models. A cushion grip addition to reduce hand fatigue and for the first time, our bare metal diamond plate texture that provides a superior grid even with sweaty or oily hands. Cold forge in the U.S., the new pliers a game changer. And the rollout was a huge hit, making our million-dollar hit product status just during the initial launch. Well, that's the Tools Group. Pivoting to technicians preferences, producing innovative, quick paybacks, making work easier, New tools matched to the task and guided by customer connection, bringing quick value to the text and you can see the value play out in the gross margins, bringing quick value to the tech. And you can see that play out in the gross margins, almost flat in the downturn. You can also see, I think, our unwavering support for the franchisees and the operating expense. It was about flat even in the turbulence, even in the downturn, even with the lower sales. We'll maintain our training, our programs and our efforts in the field. Even in this turbulence. You see, we believe the uncertainty will recede and we want the network to be strong and fully loaded when that occurs. Now for RS&I. Group sales of $458.8 million in the quarter, representing a $4.3 million or 1% organic increase that was partially offset by $1.5 million of unfavorable foreign currency translations. Those gains reflected higher activity with OEM dealerships attenuated by lower sales in the diagnostics division, BOI margin, it was an even 25%, rising 60 basis points and among the group's best. The numbers reflect the strength of RS&I products and programs for repair shareholders and managers as we help them match the evolving challenges of [indiscernible] car park. Speaking of the product evolutions and our progress with OEM pores. The traditional method of lifting vehicles is becoming more complex with the onset of new hybrid and EV platforms. The batteries require changes in lift points to adjust for the different center of gravity on EVs. And to complicate the matter. Each model design presents a different problem. In response, we designed steel floor plates matched to particular models that service guides and positioning the vehicle in the exact location that puts the lift arms in the proper place for that vehicle, enabling a safe procedure and an easy lift. The OEMs and the shops, they enthusiastically seen the innovation as another a long line of the modifications needed to match the evolving car park. They need to facilitate to match that change and we're helping them do it. Another successful [indiscernible] release was the ProX1HD [ph] on vehicle break plate [ph], specifically for heavy-duty platforms like buses, fire engine and semi-truck, delayed cuts away in perfections and abrasion on a brake rotor surface -- the imperfections and abrasions on a brake’s rotor surface that always arise during regular operations. The result is a fully restored component that supports optimized brake performance without the need of a replacement. The previous choice for heavy-duty break repair work was the disassemble of break assembly or and either order new parts or smooth the rotor on a stand-alone bench lay [ph]; in either case, a laborious process. The new ProCut design avoids both the time and the effort to lift the heavy components off the vehicle and it eliminates the cost of new parts. We believe it's another changer. Garage owners have seen the value and we project that the ProCut will become the industry standard. Also in RS&I, C&I, a car aligner serves the vehicle collision market serves the vehicle collision market. Serves the vehicle fusion market with a number of heavy-duty items. A good example during the quarter is the release of our low profile frame bench innovatively designed holding the workpiece at an optimal height, making it easier for technicians to interact with the damaged vehicle. The bench is rugged for heavy collision work and integrates with our existing policy solutions that stretch and can torque the chassis back in position. The ability to raise and lower the benches in multiple positions while still engaging with the vehicle reduces fatigue with the user and makes the process much easier. The collision space is quite robust. By the changing vehicles. And Carline has been on -- and as such, Carline has been on a continuing positive trajectory. And the new bench makes our advantage of that market even stronger. RS&I expanding its res which shop owners and managers, confronting the increased complexity, focusing on developing innovations that simplify the difficult and help shops prosper along the way. Well, those are the -- for along the way. Well, those -- the RS&I quarter was quite strong. Well, those are the second quarter results, Tools Group down impacted by uncertainty, pivoting to customer preference, launching new product, holding the gross margins and maintaining the network. C&I and RS&I providing the multi-sector power of customer connection and new product recording strong profitability, balancing the headwinds of technician uncertainty and the overall corporation. Launching a broad range of products from tapered sockets to industrial power tools to collision benches, sales about flat, OI margin, 23.8% -- 22.8%, excluding the legal benefits, one of our highest and EPS $5.07, $4.91 excluding the legal item setting a new high. performance achieved against the wind. It was an encouraging quarter. Now, I'll turn the call over to Aldo. Aldo?

Nick Pinchuk:

Thanks, Aldo. Wow! that's our second quarter. A period of continuing turbulence borne out of the uncertainty in the grassroots detect, uncertainty on the near-term environment. Customers tech that are cash rich and confidence poor. But it was also a period where our value-creating mechanism observing past right in the workplace, connecting with customers and translating the insights in an innovation that can make critical tasks easier where that core of our business model demonstrated that if efficacy stretches well beyond our traditional customer -- technician customer base and it does so quite profitably. It was an interlude in which our Snap-on value creation processes showed its ongoing strength, particularly visible in the Tools Group, where it drove product value and operating efficiency that buttressed [ph] gross margins, that stayed close to about flat despite the lower volumes. And you can see that written all across the quarter. The Tools Group, an uncertainty driven decline in volume continuing an -- and continuing and unreduced support for its franchise network but with profitable quick payback products on RCI [ph] keeping gross margins at reasonable levels, offsetting some of the volume impact. RS&I, seizing the opportunity to help shop owners and managers, matching the rising vehicle repair complexity and doing it very profitably, achieving an OI margin of 25% one of its best C&I rolling out of the garage to -- in critical industries overcoming the recessions in Europe and the turbulence to grow in each feeder [ph], continuing the upward trajectory of its customized kitting business driving expansion in critical industries and achieving an OI margin of 16.7%, up 70 basis points; its highest ever. And it all came together for a positive performance for the overall enterprise. Sales; about flat against the uncertainty. OI margins, 23.8% -- 22.8%, excluding the legal payment, one of our very strongest, and EPS $5.07 -- $4.91 without the legal payment, the highest for any Snap-on quarter. It was an encouraging period. And we believe that with the strength of our business model, with the opportunities inherent in our broad markets and with the considerable and harm experience of our team, Snap-on will remain resilient in the turbulence, making the most of it is the abundant possibility to markets and we'll continue to advance making progress through 2024 and well beyond. Now before I turn the call over to the operator, I'll speak directly to our franchisees and associates. I know a lot of you are listening. The strength Snap-on has demonstrated in the turbulence and the associated advantages we carry into the days ahead have been created by all of you. the considerable capabilities you bring to bear every hour to have my admiration. For the significant success you've achieved in the quarter and for many periods before, you have my congratulations. And for the unwavering belief you hold in the future of our team, you have my thanks. Now, I'll turn the call over to the operator. Operator?

Luke Junk:

To start with, just hoping we could get an update on the facility expansion projects that you have going on right now, both kind of progress incrementally timing and then how things are progressing versus your expectations? And to what extent you can leverage that to pivot the mix and really focus on those quicker payback items that folks are looking for?

Luke Junk:

Facility expansions -- I think -- both, Milwaukee -- yes [ph].

Luke Junk:

That's very helpful. Could you maybe comment on tool storage, specifically in the quarter [ph] the benefit, I think, already in the first quarter of you having the capacity in place and flexing it like you just spoke to, did the growth continue in the second quarter?

Luke Junk:

And then lastly, just given the uncertainty in terms of tax right now, do you meter or change your approach to the SFC all this year just in terms of promotions and positioning and could it be maybe a venue to refine your approach in this more unsettled environment kind of exiting this year into '25 [ph]?

Operator:

And our next question will come from Bret Jordan with Jefferies.

Nick Pinchuk:

Well, remember that that's characterization. We are strong in the dealerships because the OEM programs have been strong, the change the idea -- that was the purpose of the Lyft discussion with is that really the OEMs are coloring up or are raising their game to match the different drivetrains and the more autonomy and the OEMs are launching programs to do that. and either associated with new models and new capabilities like demonstrated in Lyft. So you see that and that is marking. That business grew again high single digits in the quarter. So that is Boeing is underpinning that. And also, it's around the -- some of the software in that business with our electronic parts catalog. Now if you pivot, it's a little more complicated situation with the independent because flowing through RS&I is the diagnostics. They have the Diagnostics division because of its dependence on the information basis which are integral to other RS&I products. So diagnostics like big ticket was down in the Tools Group. So that dragged down some of the RS&I volume. If you look at our RS&I C&I, both sell to power tools and C&I diagnostics and ours. And if you look at them, they were up, I think the number was 1% organically at RS&I 1.2% organically in C&I. But if you looked at it externally, excluding sales to the Tools Group, internal sales, C&I was up 3.9% organically. And RS&I was up over 4%. And so it's a little more complicated description of that. We described it that way based on the efficacy of the actual reported numbers. So we do see some progress in independent shops, particularly with our direct sales businesses. You see one of the things that is happening in RS&I and coming out in RS&I is that when we can get up and sell directly to the customer with our, I think, really strong product line and broad, we do pretty well. We're still doing pretty well. But a part of that business goes through distributors. And when they go through distributors, we're seeing a pull off of that business. We saw it particularly in some of the RS&I businesses. So I don't think it's the independent shops. I think it's the distributors themselves or maybe getting a little white knuckle at this time and maybe taking down some of their inventories, some of those distributors. So you're seeing that over here. It's kind of a complicated complicate around late summarized. We're doing pretty well with the dealerships. We're doing well selling to direct independent shops which means they're doing pretty well and they're doing -- they're still robust. But the intermediaries are a little bit more reluctant.

Nick Pinchuk:

Well, the price per unit is a lot lower. So you've got to sell a lot more wrenches to make up for a tool storage box, that's pretty important. And that can weigh on your volume. But I would offer to you, you need to look no further than gross margin. Margin down 20 basis points with a -- what was it, 7.7% organic sales down, gross margin down 20 basis points -- how does you think that happened? Well, it happens because the new tools you bring out. The new ranches, the new tools we're bringing out, they are selling at good margins -- that doesn't mean we're pricing the existing businesses but a lot of these new tools and a lot of them are rolling out we got rent ships and ratchets and extensions and things that are especially made after the E-Series and the Super Duty trucks we talked about. People are willing to pay big premiums or that kind of stuff and it's playing out in the gross margins. part of the story about the Tools Group is, we held the margins pretty well and we kept spending at lower volumes. We didn't back off of the SG&A supporting the franchisees. So in effect, we could have blunted the volume even more if we didn't want to we didn't believe that the sun is coming out again and we want to be at full strength. So those are the balances. Gross margin is a big -- if you look at the gross margin overall the corporation, C&I is up 220 basis points RS&I up 50 basis points. The overall corporation is 5.6%, only down 10 basis points. So what you're seeing in our financials are, boy, we're still pretty robust. That's why I love the idea of C&I and RS&I Boeing up the turbulence of the Tools Group because if you look at the overall business, you say, hey, this business at the gross margin level looks pretty healthy.

Gary Prestopino:

Just wanted to address the corporate expenses look like they were down and I would assume that's the impact of the legal settlement, right?

Gary Prestopino:

Right. And I could also see the stock comp was down. And I guess what I'm getting at is that looking forward in the back half of the year, should it be some -- without the impact of any legal settlement? Should it be somewhere between $20 million and $25 million a quarter?

Gary Prestopino:

The other question I want to ask you is quite obvious that there's a slowdown here in the buying of diagnostic equipment. Some of it deals with the fact that you just had a great year last year. But when does it get to the point where the technician or the shop starts falling behind, if ever, if that occurs really with not upgrading their diagnostic product. And my understanding is that with these products, it really speeds up your production being able to repair cars. So does that start coming into play here as we work deeper into this?

Operator:

Our next question will come from David MacGregor with Longbow Research.

Nick Pinchuk:

Well. I don't know. I think I wouldn't have said that Q2 last year, you're right. On a year-over-year basis, if you just look at year-over-year, Q2 last year was down. It wasn't down, it was tepid, let's say. So it wasn't -- in that space, it wasn't as strong. But if you look back, if you look sequentially the movement between the first quarter and the second quarter isn't that much different in the last year versus this year. So it's not so inconsistent. It isn't like it isn't like that's a big difference. If you're talking about the second half, boy, there's a lot of things going on. One is that for some time, so it's hard to judge what the second half would be like. You're not going to get me to say that it will be negative in the second half because we have plants, we think provide some overcoming to that. And for some time now, for several quarters, the sales off the van have been bigger than the sales to the man on a year-over-year basis. Now we saw some of that change towards the end of the quarter. So I don't know where it's going to go. If you want to look at it -- so from a -- I would say when you look at it from an operational point of view, do you think sooner or later, this is going to have to play out more positively. But then when you look at uncertainty, your guess is as good as mine about how the uncertainty is going to play out. It seems to me as though, like I said in my remarks, the hits just keep on common. And so does anybody think -- if you look at the uncertainty in the world that it's less uncertainty -- or is the same today as it was, say, 3 months ago? I don't think so. I don't think so. And so you hear that out of the technicians. I don't know where it's going the third quarter or the fourth quarter, it's hard to say. But I think there's some positives that would mitigate towards positivity, the things we're doing the product we're bringing out the pivots we're making. But on the other hand, if you look at the macros, it's a black hole. You don't know it's very opaque. So your guess is good as mine in that situation. All I know is the only thing I can control is to try to do the pivot to try to match what the technicians and take advantage of every opportunity we have and the message of this quarter is, is that RS&I and C&I, show that the model works in those places and I can make a lot of money and they provide good offsets.

Nick Pinchuk:

I don't know. What happened -- my view on the second quarter, you may have a different view of it might view the second quarter was, we didn't back off. We kept spending the same. We spent a little bit more [indiscernible].

Nick Pinchuk:

More volumes. So I'm not talking that I'm going to sally forth with a lot more expenses but I'm holding the support I'm holding a support. We're doing what we do only we're adjusting it to match the current situation. I didn't mean my comments before that we're going to open the plug dates and spend a lot more. I didn't mean that. What I meant is I'm holding because I thought we were doing a pretty good job of supporting before. Now I think we held that in the second quarter. We'll probably do that again but it will be a different array versus the match to the current environment.

Nick Pinchuk:

Yes, right.

Nick Pinchuk:

Cadence was pretty, I think, consistent throughout the quarter. I think towards the end of the quarter, we had less destocking events in the last month or so. that's a positive. However, sometimes, I'll tell you, David, sometimes that happens because it's the last month. So it's hard for me to interpret whether that's a last month phenomenon that happens once in a while, not uncommonly but not all the time. It hasn't happened recently but it did happen. So maybe that's a positive. It's not for us to predict that out of the 1 month. But I think if you go back through the quarter, it was about the same levels. The relationship was the [indiscernible] except for the land.

Nick Pinchuk:

No. It's too early. And then you got too much stuff floating through July. Somebody asked me, not on the call but asked me well, are people pulling back in early July, waiting for the SFC, the responding -- we did have, like I said just a minute ago, we had the Super 7 program that rolled out and seemed to be pre well received with this full array of hand tools. We gave him a great jackpot blast the hand tools for this promotion. And that seems to get enthusiasm up and it's pretty close to expectation. I think it was the kind of sellout type of things or close to sell it. So that seemed to go okay. But that is an evidence to proclaim where the world is going. It's better than a pulp in the Iowa to sustain but you're not going to be able to -- can't extrapolate to -- it's dangerous to extrapolate out of that too much. Now I hope it is. The flood gates go up and everything is going to go well. Happy days are here again.

Aldo Pagliari:

The mix of activities is pretty much similar to last quarter. So no, they have not pivoted to RA transfers as a method of funding activity on demand or anything like that.

Scott Stember:

Nick, is there a way of trying to see how much of the tool sales decline is really just based on the fact that you still don't have the available capacity to make product? Just trying to frame that out -- and If you can't do that, maybe just give us an idea of when would you expect to have all of the capacity and all the bottlenecks could up to make sure that you're at least making what they need?

Scott Stember:

And then, just last question. When you're talking with the shops and just with your franchisees, what are you hearing about how your competitors are faring at least at the shop level -- just trying to sense if there's a share loss or...

Operator:

And our next question will come from Christopher Glynn with Oppenheimer.

Nick Pinchuk:

I'm bit about it. But look, I think you have to reassess how we're going -- I mean the thing is we -- I think you know our view of cash usage going forward, capital usage. And the first idea is to make sure our business is fully funded. Secondly is we look at the dividend which -- the dividend is coming up and we have paid a dividend every quarter since 1939 and we have never reduced it. So we assessed that in perpetuity -- sorry, guiding principle. But we have increased the dividend. I think now every quarter for almost 13 years, if we lease it again, it will be the 14. I'm not giving you any insight information about whether we're going to increase or go flat or anything but we'll be looking at that pretty carefully. Then we have acquisitions which we're constantly looking at -- and you've heard the story before that we have this landscape. In fact, we have guided as we speak, looking at other acquisitions. And I don't know if they'll play out or not because we're careful with our money. And then we have stock buyback which you already pointed out, as an authorization now that's a little bit less than it was before. And so we'll have to assess that as we go forward. That's how I'm thinking of it really.

Nick Pinchuk:

Well, I can tell you this. In the last 6 months, I've met with franchisees and customers in almost like in the Midwest, in the East just recently in Syracuse in Atlanta and the Southwest. And there hasn't been that much difference. That's one stretchers. I think there's uncertainty, we saw this before. I do think the grassroots economy is impacted by the uncertainty broadly and the text may be among -- maybe the techs are special because car repairs continues robust. So there are -- a lot of people are confident poor but the techs are also cash rich in that situation. So that may be that may be part of the issue. I don't see much. And I talked to our regional guys, all 9 meters were in here. Any there's some differences and we try to look at those differences and try to figure out maybe should we facilitize more. Are they -- are those operations? We haven't been able to come up with much actually. So I don't see much difference even though you would say there would be you don't really -- you get the same story from text everywhere.

Nick Pinchuk:

The tax, I don't know. I don't think the tax, the garages may be. The garages might get more regulatory compliance costs. I don't think the tax is so much. They don't mention it so much, I think. I don't hear that but I just -- small businesses, I mean the national soul change [ph] in manufacturing goes while over regulations, you know. They talk about how much it cost, they say it for every small manufacturer. So every small manufacturer has to pay $35,000 per employee per year in regulation costs. So I think by extension, you would say small businesses like garages would have that problem. But I don't think the tax [ph] would be burdened with it.

Tom Hayes:

Thanks guys. Appreciate you fitting in. Just quickly, Nick, maybe any color you could provide on what you're seeing on the positive side on the critical industries. I think you guys called it out as a bit of a bright spot. Is there anything maybe on avionics or military or natural resources that stands out?

Operator:

This will conclude our question-and-answer session. I'd like to turn the conference back over to Sara Verbsky for any closing remarks.

Operator:

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.

Operator:

Good morning, and welcome to the Snap-on Incorporated 2024 First Quarter Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Sara Verbsky, Vice President, Investor Relations. Please go ahead.

Nick Pinchuk:

Thanks, Sara. Good morning, everybody. As usual, I'll start with the highlights of our first quarter. I'll provide my perspectives on the results, on our markets and our path ahead. After that, Aldo will give you a detailed review of the financials. We believe that our first quarter once again demonstrated Snap-on's ability to maintain its strength to engage headwinds, to manage challenges and to leverage the multiple opportunities of our markets. Looking at the results in total, we are encouraged. Like most quarters, we had turbulence from geography to geography and from operation to operation. North America was mixed, but with significant gains in critical industries. Internationally, our consolidated results were also mixed, but yielding overall positives as our operations in Europe and Asia overcame the effects of recessions in Europe and the delayed recovery in China. Now the results. First quarter sales were $1,182.3 million about flat to last year on an organic basis, excluding $6.7 million from acquisitions and $2.5 million from favorable foreign currency our sales were lower by 0.8%. OpCo OI was $270.9 million, an increase of $11.1 million and the Opco operating margin for the quarter was 22.9%, up 90 basis points. Now both those numbers benefited from the legal payment referenced in our release. But with or without that legal flow, our first quarter Opco OI and the margin were among our best. It's a strong statement given the turbulence of the day. Financial Services. Operating income grew to $68.3 million from last year's $66.3 million, and the results combined with Opco to raise our consolidated operating margin to 26.5%, up over the 25.6% recorded last year. And EPS, it was $4.91, including a per share benefit from a legal payment of $0.16, but up $0.31 or 6.7% from last year. So those are the numbers. Now let's turn to the markets and the trends we're seeing as we connect with our customers. From an overall perspective, we believe the automotive repair arena remains favorable. Vehicle OEM and dealerships continue investing in tools and equipment, preparing for the tie to new models, bringing the latest technology and drivetrains to the market. And in the quarter, our Repair Systems & Information Group, or RS&I, as we call it, expanded our reach into OEM programs and took advantage of the opportunities throughout its global footprint. And as we look forward, we see further prospects for RS&I capitalizing on that trend supplying dealerships and independent garages with just the products they need to confront the wave of modern platforms that are coming. So the shops are strong. Now let's speak of a technician. The guys and gals that twirl the wrenches, punch the keys, or tap the screens. This quarter, I have multiple occasions to visit with franchisees. And the report was generally that shops are humming, the bays are running at full capacity, and all that mirrors what the macro data says naturally. The car park is continuing to age. Now at an average of 12.5 years, and I think moving up, technician wages are rising and their hours worked are increasing. We believe it all signals ongoing and robust demand for repair. And you know it's true. The activity is strong, but there is a difference between the industry overview and the technician outlook for the future and by extension, their purchasing sentiment. The barrage of bad news, inflation, towards the border, the Red Sea, the election, the Iran bombing for the people of work, the fear of what's coming around the corner impacts the outlook and paraphrasing the characters of Dune, fear is the outlook killer. It erodes confidence. Techs are well positioned, and they continue to invest but it's in quick payback items that will make a difference right away, but don't require a long-term payment stream. And in response, we're continuing to redirect – we continue to redirect the Tools Group focus in our design efforts and our facility capacity and our selling and marketing efforts, working to match the current customer preference. So that's the auto repair. Now our Commercial and Industrial Group or what we call C&I, serving critical industries in the most international of all our groups, and in the quarter, C&I manages the difficult challenge of balancing multiple economies that are in economic turbulence. Europe now has more than half a dozen countries in technical recession. And then China – in the China environment, including the nearby countries, depending on it, they continue to struggle. India on the other hand, it's booming. Modi has the train running. So that's a positive in Asia amidst some very difficult economies. So that's the geographies. Now let's focus on the sectors. Areas like aviation continue to be strong. You don't have to read the paper very long to realize there's a significant focus on aerospace production and repair where the price for failure is high, and that arena is increasing demand for our precision torque products and for our asset control solutions to improve safety and productivity. In addition, in that sort of critical arena, custom kits, matching a set of items to a particular task it may it's an important business, especially for the military, both domestically and internationally. And with that, Critical industries is a substantial opportunity, and we are investing, expanding capacity, adding new products either organically or through the acquisitions we made over the last few years worth fortifying our runways for growth, extending outside the garage, and we know it’s paying off. So overall, the quarter was favorable despite the headwinds, Tools Group pivoting, RS&I expanding with OEMs, C&I extending beyond the garage solving the critical. And the OpCo OI percentage demonstrated once again the power Snap-on’s value creation processes, safety, quality, customer connection and innovation and rapid continuous improvement, developing innovative solutions that are born out of insight and observations right in the workplace. This understanding melded with RCI, helps Snap-on to once again hold fast in the turbulence of the day. Well, that's the macro overview. Now let's move to the segments. In the C&I Group, sales were $359.9 million, representing a decrease of $3.9 million or 1.1%, and that includes $6.7 million in acquisitions, acquisition-related sales, $1.4 million in unfavorable foreign currency and an organic decline of 2.5%. It all reflects higher activity with customers in critical industries, more than offset by weakness in Asia-Pacific and in our power tools. From an earnings perspective, C&I operating income was $55.4 million. That was about the same as last year. The operating margin was 15.4%, up 10 basis points, and that was despite 30 basis points of headwind from currency and the acquisitions. Within the quarter, the demand for custom kits, addressing particular critical tasks remain nicely robust with increased demand for control solutions like our Automated Tool Control products. It was a nice bright spot in C&I. On the other hand, power tools was down in the quarter, but help is on the way. Tuning power tool models born out of customer connection were recently introduced, each fulfilling specific needs for – each fulfilling specific needs. For repair garages, we launched the PH3045B AirHamer. This is a tool that replicates the effect of swinging a hammer and hitting a sizzle except the device, hurdles the hammer 3,500 times a minute. Vehicles are filled with components like ball joints, wheel bearing, suspension bushings that are packed in tight fit for maximum efficiency. This assembly can be a bear. We know this from being in the garage. While with our new AirHamer, the easy-to-use retainer securely holds a chisel in place while the piston sledge hammers away. It's powerful. But at the same time, the compact two-inch barrel – the two-inch barrel enables the access in tight spaces, delivering tremendous power, speed and energy with unlimited run time. It's a real productivity enhancer, but the essential feature born out of watching the technicians in the shop is the best-in-class vibration reduction, created by special elastomer shocks, allowing the mechanic to pound away at these suspension components without fatigue or paying, no more store arms from hammer work. The new hammer was introduced late in the quarter and techs have already noticed. Also on power tools, our cordless portfolio expanded with the introduction of a new 18-volt nibbler designed for collision repair and metal fabrication. It's a big time saver. It speeds up work that once involve hand shears or other devices, help technicians cut any free-form shake conceivable out of tough sheet metal. Again, the design resulted from customer connection from watching the tech struggle with shears. Our new nibbler makes a big difference when cutting in defenders extracting a damaged panel or cutting a ceiling of a car accommodating installation of a sunroof or creating a place anywhere in the vehicle for placing emergency lighting, shining away for first responders. I have to tell you, I have to tell you, we are encouraged by these innovative new products. And by all the others we're planning to introduce as the days go forward. We know work and they all will make a difference right away. C&I, a quarter confronted with international headwinds, strong momentum in domestic markets, led by critical industries, extending out of the garage with growing strength. Now let's talk about the Tools Group. The first quarter for the Tools Group was below our standard. However, we do remain confident, and we do see a pivot to focus on quick payback items registering a positive momentum and movement. Sales in the quarter were $500.1 million, including – reflected an organic decrease – including an organic decrease or reflecting an organic decrease of 7%. The Group's operating income margin was 23.5%, down 100 basis points. Notably, gross margin in the quarter rose 90 basis points, reaching 48.2%. You see shorter payback margins aren't shorter on profitability. During the quarter, we worked to redirect our plants, guide our franchisees to innovate solutions that drive productivity, and we kept engaging our customer connection, observing the task executed in the bay and using the insights to design and deploy innovative and focused products offerings that are dedicated to making work easier, like two new products, just engineers – just engineered to address time-consuming tasks where simple repairs are made complex by limited – made complex by limited accessibility or by seized components that slow the work to a snail's pace. You can see it in the garage. For instance, on General Motors, 6L80 and 8L90 transmissions, the valve body bolts are obstructed by the exhaust set up, making it very taxing to do this job with a standard ratchet or socket combination. We were in some – we were in some of those GM garages and observed the problem firsthand, classic customer connection. And the innovation that followed in our quarter-inch drive Torx Plus EPL-10 low-profile inverted socket. That's a mouthful. That innovation was released in the first quarter, and it does make GM transmission work easier. The new cushion design precisely maneuver – the new custom design precisely maneuvers between the exhaust assembly and the transmission engaging the fastener in such a way that provides enough clearance for a ratcheting box or a box-end wrench or a hand ratchet to access the bolts for easy removal with no exhaust disassembly require saving more than 45 minutes per repair right away. Techs working on GM transmissions can complete more work with this device and make more money. They can do that right away, quick payback. Another example we saw, another example of that was we saw that removing the brake caliber pins on Toyota trucks and sports utilities was very difficult. The pins on 4Runners, Tacomas and Tundras are exposed to harsh road environments, often causing the parts to become immovable, regularly requiring like heat or excessive force to free the restricted fasteners. And each of those methods requires time and it raises the risk of damage to nearby components often elevating the complexity of the repair, taking a lot more time, watching the work. Our engineers produced a unique punch like bit that precisely aligned to an air hammer with the dimensions of the pin, maximizing the extraction force without endangering the surrounding systems. Once again, simplifying the task and freeing the tech to move on to other jobs. It's another quick payback item that's now available and popular. Finally in the quarter, we expanded our only – the only U.S.-made locking plier lineup by releasing two new models, the LP5LN constructed with a tapered nose. It's ideal for additional reach inside compliance space to easily access narrow workpieces. And the new LP5WC delivering a reliable gripping power is difficult to engage round objects like hoses. Beyond the special features of those two models, the full line offers our subcompact six-inch plier line offers increased accessibility and – because it's small enabling text to maneuver and crowded engine compartments and under the dash. The design also provides unmatched clamping forces, that locking pliers, unmatched clamping forces that will not slip under load with the locking mechanism. The pliers also serve as a second pair of hands. They're going to lock them up – locking up, holding materials, securely in place, freeing up the technician's hands to complete another step in the repair. And each unit, each of those locking plier units is forged and produced on our Elkmont, Alabama plant, and they're the only locking models made in the U.S. Well, that is the Tools Group, pivoting to match the technician's current preferences and needs, wielding our customer connections, deploying solutions that improve efficiency by making tasks easier. Now RS&I. The RS&I Group's results confirmed, I think, what we've been saying all along, Snap-on is well positioned to support repair shops, both dealers and the vast networks of independent shops. And in that regard, RS&I sales in the quarter were $463.8 million, up $17.2 million or 3.9% versus last year with an organic sales increase of 3.3%. Operating earnings for the group reached $112.9 million, reflecting an increase of $8.3 million or 7.9% versus last year. The operating income margin was 24.3%, rising by 90 basis points, a powerful performance driven by OEM-related activity and sales in undercar, helping shops prepare for new technologies. In terms of OEM-related activity and sales in undercar helping shops prepare for new technologies and enabling system upgrades in the growing collision market. We continue to seek to clearly see abundant runways for growth in RS&I, and we're working to take advantage. One example of that is the launch of our new heavy-duty repair information software. This package combines the vehicle interface capabilities of our NEXIQ heavy-duty diagnostic units with the horsepower of our Mitchell 1 information database. It's an innovative solution for repair and heavy-duty industry, which over the past decade has seen an explosion of new technologies relating to sophisticated emission control along with advanced computer and electrical networks that all combines to present heavy mechanics with complex and complicated repair tasks. Now the solutions – now with solutions all located in one spot, tests can search by VIN number and access operating specification, troubleshooting tips and interactive wiring diagrams, all be specific to the particular vehicle, all big time savers and existing products was deployed in the quarter, and it's a groundbreaking integrated platform. The combined diagnostic capability together with vehicle information, it's very powerful. And I can tell you, the heavy-duty industry has noticed. You can see it in the RS&I numbers. And in the quarter, our Diagnostics division also released its latest 24.2 software upgrade, expanding our broad range of vehicle coverage and test procedures throughout all our existing hardware. The new upgrade strengthens our already market-leading data positions. Technicians get access to our SureTrack vehicle-specific real fixes, repair tips and commonly replaced parts, all derived from our proprietary database of 2.7 billion repair actions and 355 billion data records unmatched insight, not only to interpret what the vehicle trouble codes are saying but to uniquely use the information to determine the exact problem, analyzing millions of data lines per car, predicting the most likely repair. Snap-on uniquely provides this capability. And in this latest update, we continue adding new models and functionalities, making our proprietary software position even more effective and more powerful. We’re confident in the strength of RS&I. And we keep driving to expand its position with repair shop owners and managers to make – by making work easier with more and more great new products. Well, that’s Snap-on’s first quarter, sales flat, overcoming the significant headwinds, critical industries advancing, again, the tools group pivoting, matching the preference for quick payback products. OEM undercar repair information markets are remaining robust. The Opco OI margin, 22.9%, up 90 basis points and an EPS of $4.91, strong results that overcame the headwinds and benefited from a legal outcome. All demonstrating the strength in the midst of turbulence, it was an encouraging quarter. Now, I’ll turn the call over to Aldo. Aldo?

Nick Pinchuk:

Thanks, Alan. Well, that's the first quarter. Strength in the midst of turbulence. Even with a part of the enterprise below standard, you see Snap-on is a business that reaches varied customers in different industries and in various geographies united in a coherence that is the criticality of work, the essential nature of what we do. And we have the opportunity and advantage – we have opportunity and advantage in virtually all of those arenas. And as a consequence, even when the largest of our entities is not a standard, we find a way in other areas to maintain overall strength. It's that coherent strategic breadth and the experience and capability of our team to execute that has made Snap-on so resilient, moving consistently upwards for all these years, and this quarter was another demonstration of that resilience. C&I, engaging economic challenges across geographies, extending to critical industries, proving that Snap-on can roll out of the garage, exploiting a considerable opportunity and do it profitably. The Tools Group acting to adapt, committing to accommodate the tech's certain outlook and their preference for quick payback products and doing it with still enviable margins. In fact, with gross margins up 90 basis points showing the promise of their pivot. RS&I, seeing opportunities with repair shop owners and managers and making the most of it despite the challenges in Europe, volume and margins growing in a very imperfect environment and the credit company, working against the grain of short payback preferences and still raising profit. And it all came together to keep activity flat despite the difficulty to register an Opco operating margin of 22.9%, up 90 basis points and to record an EPS of $4.91, numbers that are among our strongest ever results with or without the legal benefit. And as such, we look ahead with confidence, fortified by our inherent advantages in our product, deep, wide and growing, solving more critical tasks every day, advantages in our brand. Snap-on is the outward sign of pride, working men and women taking their jobs and advantage in our people, committed, capable turbulence tested many times a team that knows how to ring the positive out of the difficult and fueled by those advantages, we believe Snap-on will maintain its strength, moving positively throughout the 2024 and well beyond. Now before I turn the call over to the operator, I’ll speak directly to our franchisees and associates worldwide. The first quarter was a resilient and robust demonstration of Snap-on strength against challenge. And it all reflects your extraordinary effort to make it sold. For your contributions to the results, you have my congratulations. For the special capabilities you bring to bear on behalf of our team every day, you have my admiration. And for the unshakable belief you consistently display in our future, you have my thanks. Now I’ll turn the call over to the operator. Operator?

Scott Stember:

Good morning and thanks for taking my questions.

Scott Stember:

Nick, it sounds like within tools that power tools was the weakest. Could you maybe quantify that how much? And maybe just talk about how the other sub-segments like tool storage, diagnostics and hand tools it?

Scott Stember:

So some of the two new power tools that you referred to you said help is on the way. When do you think we’ll start seeing this? Is this starting to shift or the…

Scott Stember:

Got it. And just last question. If you were to take out the intercompany pressure in RS&I and C&I, what were the external sales? How did they do in both of those segments in the quarter?

Scott Stember:

Got it. That’s all I have for now. Thank you.

Christopher Glynn:

Thanks. Good morning, guys. Nick, nice descriptions on the NPIs. I was actually lagging a bit because had that issue with the – I think, the caliper pins on my Sequoia last time I fixed the break. So I don’t think the Sequoia was on your list, but you can add it.

Christopher Glynn:

I was wondering if you could contrast, share some thoughts on the kind of decent strength from repair shops with an auto repair umbrella versus the technicians having some confidence?

Christopher Glynn:

Okay. And sticking with those techs, so maybe we're seeing the lag effect of inflation and rates a bit here on small private operators and you're focused on pivoting the focus to match the faster payback. Should we basically figure you need a couple of quarters to align that as you or the organizational.

Christopher Glynn:

Makes sense. Thank you, Nick.

David MacGregor:

Yes, good morning everyone.

David MacGregor:

Good morning, Nick. I guess based on our work, we expected the weaker confidence in technicians, but we also know you were more promotional than normal in the first quarter with the regional kickoffs and the follow-ons. And clearly, franchisees were not responding to those elevated promotional levels to the extent we thought. I guess going forward, do you raise further the promotional discounts and incentives – can you restore growth in the Tools segment in 2024? Or are we looking at the segment continuing at a negative mid-single-digit pace through the balance of the year. It sounded like your answer to the last question was kind of a more passive approach where you just have to wait and see how things play out as opposed to maybe taking more active initiatives?

David MacGregor:

I'm pretty certain that your post regional kickoff promotions were up year-over-year versus last year. But I can follow up with you offline on that.

David MacGregor:

Yes. Just a couple of follow-up questions, Nick. Can you talk about the progress you made this quarter with the incremental manufacturing capacity and maybe the extent to which that increased ability to ship provided a partial offset to the negative top line?

David MacGregor:

Okay. This last quarter, you had some inventory putback from franchisee attrition that contributed to the negative growth. Was franchisee attrition up again this quarter? And was the inventory put back again to source of negative growth?

David MacGregor:

Okay. And the last question for me, just on credit. I guess I’m trying to make sense of the flat originations, given the – it sounds like the Diagnostics business, in particular, might be pretty weak. How much of that would you think was just kind of revolving account transfers and what’s changing in terms of these?

David MacGregor:

Not much?

Aldo Pagliari:

It’s actually lower and lower.

Nick Pinchuk:

Not really impacted.

Aldo Pagliari:

I don’t think the penetration rates are dipping at all. I think what Nick has described as lower sales of big ticket items. And if there’s lower big ticket items, then there’s lower EC originations, but I don’t think there’s anything dramatic in terms of a shift of any sort in terms of how the Snap-on Credit is participating in the sales of the Tools Group.

David MacGregor:

Right. Good. Thanks very much gentlemen.

Gary Prestopino:

Hi and good morning all.

Gary Prestopino:

Nick, can you maybe – could you maybe just help me out here? I mean, the market for repair – auto repairs is very strong. Sometimes takes longer than you would expect to get your car repaired, even on the collision side.

Gary Prestopino:

But yet you’re saying your power tools are down and diagnostics down. Don’t the technicians really need to have these products in order to do their jobs correctly and efficiently and quickly. So I guess what I’m asking is, is this just really a function of maybe what’s going on with the Tools Group is that your diagnostic products have kind of permeated the channel, and there’s not a lack of demand that is maybe being driven by the fact that everybody’s needs have been taken care of. And then on the other side, the power tools, maybe there’s just hasn’t been the opportunity to innovate as much as you had maybe last year to drive growth? I’m just trying to square all this together.

Gary Prestopino:

All right. And then I guess the last – you had mentioned that this had happened before, I think, in The Great Recession.

Gary Prestopino:

So how long did this take to flesh out? Was this a couple of quarter phenomenon?

Gary Prestopino:

Okay. Yes. Thank you.

Operator:

The next question is from Luke Junk with Baird. Pleaser go ahead.

Luke Junk:

Yes. Good morning. Thanks for taking the questions. Maybe just pivoting on that last point there, Nick, just trying to get a feel for your gut of how much you think is under your control as you make this pivot and like you said, just matching new products with where the demand is right now in terms of I guess I'd be interested to get your perspective on the last six months. Just how much that feedback has changed of what mechanics want? And to what extent are the franchisees able to kind of give you demand clues or is it more about kind of pushing the right products to the franchisees and helping to market the products?

Luke Junk:

And then maybe a question on RS&I if I can sneak it in, just the expanded opportunity right now seeing with OEM dealerships, especially kind of new technologies and new things coming into the market. Just that seems more of a secular opportunity. I mean, do you see the opportunity is any different versus this business historically either in kind of the scope of the opportunity or even the margin opportunity maybe?

Luke Junk:

I’ll leave it there. Thanks, Nick.

Operator:

The next question is from Sherif El-Sabbahy with Bank of America. Please go ahead.

Nick Pinchuk:

Sherif, how are you?

Nick Pinchuk:

Say that again, please. Sorry.

Nick Pinchuk:

No, I don't think so. I think there is a constant movement between pneumatic and cordless in the power tools or a lot of people are converting to cordless. Not everything can be converted to cordless because people want to have continuous power and of course, the pneumatic will keep going. So if you're doing something over and over, sometimes people prefer pneumatic guns, because they don't run out of battery and they're lighter and all that stuff. So if you have a repetitive situations. But there's a general motion to cordless – we haven't seen any – if you look at the nature of the product line, products and power tools, what you see is sales that follow introduction of new products. Every time we bring out a new product, that tends to raise that particular category. I haven't seen much of a particular pullback. I think the need for power tools in industrial settings in critical industry settings remains moving at pace in the garage is less so because of the aforementioned uncertainty. That's all. That's the only color I can add in that situation.

Nick Pinchuk:

Sure.

Bret Jordan:

Hey good morning guys. Don't think we've touched on the sell-in versus sell-out on the U.S. franchise tools. Do you have any color as far as what their POS looked like versus their take rate?

Bret Jordan:

And I guess the sellout rate, how do you think that compares to the general market growth rate. I guess, do you think you're keeping up from a market share standpoint? Or is there any – shift there?

Bret Jordan:

Okay. There seem there will be a little gap between – with the Matco numbers at the end of last year. So we're not commenting about Matco becoming more aggressive as far as pushing their volume.

Bret Jordan:

All right. Thank you.

Operator:

This concludes our question-and-answer session. I would like to turn the conference back over to Sara Verbsky for any closing remarks.

Operator:

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator:

Good morning, and welcome to the Snap-on Incorporated Fourth Quarter and Full Year 2023 Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Sara Verbsky, Vice President of Investor Relations. Please go ahead.

Nicholas Pinchuk:

Thanks, Sara. Good morning, everybody. As usual, I'll start with the highlights of our quarter and our full year, and I'll provide my perspective on the results, on our markets and our path ahead. After that, Aldo will then give you a detailed review of the financials. The results for our fourth quarter represented that we believe, another period of forward progress. Again, we had opportunities and countered headwinds and the shape of the variated landscape changed as it regularly does. But in the end, we once again took advantage of the opportunities and overcame the turbulence. Sales in the quarter were $1,196,600 million or $1.2 billion, sounds better that way, up 3.5% as reported from last year, excluding $9.1 million of favorable foreign currency and $5.5 million from the recent Mount acquisition. Organic sales increased 2.2%. The results represent a positive trend of some significance, demonstrating Snap-on's ability to adapt and to overcome market disruptions. From an earnings perspective, our OpCo operating income for the quarter was $257.9 million, and the OI margin for the quarter was $21.6 million up 10 basis points compared to last year. For Financial Services, operating earnings were $67.9 million, rising from the $63.9 million recorded last year. And the combination of the results from OpCo and from Financial Services offered an overall consolidated margin of 25.2%, also up 10 basis points. And the overall EPS was $4.75, a rise of 7.5% from the $4.42 that was registered a year ago. Now I talked about margins, let's turn to those markets and the trends we're seeing, based on our customer connections. We're with customers all the time. We believe automotive repair continues to be clearly favorable. Vehicle OEMs continue to see the need for upgrading dealer repair shops and enabling the shops and servicing the blizzard of new miles and technologies making the way to the market. And preparing for that future, OEM continue, requiring dealership investments in new Under Car Equipment and essential tools to meet the challenge. It's a considerable opportunity at which Snap-on is clearly taking advantage. Activity in the independent shops is also robust. You can see it in the vehicle and repair macros, car parks. The car park is growing and getting older. Now over 12 years old on here, cars are getting more complex and more difficult to fix and reflecting all of that, service hours are up. Household spending on repair is growing. Wages are rising. The number of technicians is moving upward fast and ship-owners keep shouting, they want more technicians, even louder than they have over the past years. So the underlying repair business is strong. It's prospering. It was a reality that kept the text positive, even as the financial was champing over the past years and months, the recession is coming, the recession is coming. But cash isn't everything. Cash is in everything for the people of work. Personal confidence is a balance between your current environment, the garage we see and the way you see the world evolving in sometime and sometime in the mid fall of last year, our franchisees sense that balance shifting negatively. In recent weeks, I've been around, I visited franchisees all over the country; in Nevada, South Carolina and Wisconsin, and they all said about the same thing. The techs are cash rich, but because of the external bad news of getting for breakfast almost every day, the impact in the Ukraine, the war in the Middle East, the dysfunction at the border and the uncertainty of the upcoming election, the weight of it all appears to be turning the tech's, confidence poor. And when this happens, based on what we've seen in other times, we've seen it happen before, our customers keep purchasing, but they gravitate towards shorter payback items. And so it appeared to be as the quarter progressed. You saw that from mid to the end of the quarter. And so repair is strong, but the techs are worrying about the way forward, still cash rich, but they appear to be wavering in their confidence. This is a big change. Now let's move forward to critical industries. That's, of course, a bit different color. Confidence seems to be abundance across that business. This is where our commercial and industrial group or C&I, plays. We continue to see progress. And again, the results in the quarter reflect that trend. It's a complex segment. A lot of you know this already, but I'm going to say the context, it's a complex segment embedded with essential techs where the penalty for failure is high. It's an arena that demands precision, functionality and repeatability, all under the most grueling environments, covering a vast range of applications from the sensitive micro world of chip manufacturing to giant rugged earthmoving equipment to performance critical aviation, things even up to spaceships. The underlying need for customization - but in that segment, the underlying need for customization and precision both, Snap-on strength is clearly growing all across those sectors. C&I, is also the most geographically dispersed operations. And there's, significant variations from country-to-country and created by the uncertainties in the economic political policies. As such, we see mixed results in Europe and a continuing but slow recovery in Asia. We also see differences from sector-to-sector with education, aviation and the military, military and general industries, all showing nice improvements where natural resources and heavy-duty are off. But shining through all that variability is our expanding strength in those critical industries. The advantage Snap-on holds in product and brand and in people. And in the quarter, those drivers were on display. So across our corporation, I would characterize our markets as mixed, turbulent from period-to-period and from sector-to-sector, but filled with ongoing opportunity. And we believe we're well positioned to face the challenges of today, though at the end of today and those that may arise in the future. We remain confident that we have the continuing potential along - we have continuing potential long-run run rates for growth, and we see significant power to overcome rooted in our Snap-on value creation processes of safety, quality, customer action innovation and rapid continuous improvement, especially customer connection. One of our substantial competitive advantages is being right where the actual paths are being pursued and in engineering the products to make the work easier by matching those insights, the insights gained with technology applied. We've seen that over time, we've seen that innovative offerings create the path to advance and to overcome any turbulence. And in the quarter and in the year, our product line continued to advance, just kept getting stronger. And we continue to invest in Snap-on value creation to make that possible. We believe, in fact, that our product line has never been stronger. And despite the turbulence, we had more million dollar hit products in 2023 than ever before, and we believe we'll move higher again in 2023 than ever before, and we believe we'll move higher again in 2024. Now, let's talk about the full year, the 2023 performance. Sales of $4.7302 billion represented an increase of 5.3% as reported and arrived at 5.6% organically. Opco alone exceeded $1 billion. I'd say that again, $1 billion for the first time, reaching $1.399 billion and our Opco on margin of 22%, 22% represented an average increase, an increase of 110 basis points at gangbusters. We've never been at 22 and 110 is a great increase. And when we include financial services earnings of $270.5 million, the consolidated operating margin for the corporation year was 25.7%, up 80 basis points. Earnings per share with the year were $18.76, rising $1.94 or 11.5%. We believe these are good numbers. Now for an individual - for the individual operation. Now for the individual operating group. So let's start with C&I. Reported sales for the C&I group in the quarter were $363.9 million, up $20.7 million or 6%. That includes $5.5 million from the recent Mountz acquisition, $3.6 million of favorable foreign currency and our organic sales increase of $11.6 million or 3.3%. They all reflecting the strength in critical industries, partially offset by a slide in automotive power tools. C&I's operating income for the period was $54.1 million. It was up 12.9% and the OI margin was 14.9%, rising 90 basis points and overcoming 50 basis points of headwind associated with negative currency. Again in this case, the advance was driven by strong expansion in critical industries. And our increased kitting capacity for complex orders continue to play a large role in that progress, but significant advances also spur as a regular is by new product. Innovations like our recently launched automated tool control or ATC portal, it's the latest addition to our unique Snap-On ATC tool control product lineup. It's manufactured at our AutoCrib operation that was recently acquired in California, and the portal significantly extends the reach of our ATC systems. It enables efficient control over a much wider range of device shapes and sizes. In effect, this portal's a doorway, in line with radio frequency identification or RFID antenna, it's typically a place that enters to tool. Significant assets like hydraulic pumps, portable generators and valuable diagnostic equipment are often stored in common areas in factories or other places and enter a catalog by fixing an RFID tag. As technicians scan the badge is entering with the portal, the system documents the devices will be in and out of the secured stores, keeping close track of these critical items, just like the base ATC system keeps track of hand and power tools moving in and out of the tool storage box, but over a much wider set of areas. We anticipate that the new portal will be a big boost and a great opportunity for C&I in the growing area of tool control, a very important area for us. And in the fourth quarter, we saw some of that potential come to bear. So C&I, mixed progress, challenged with headwinds but clear and overall advancement, great momentum enabled by capacity expansion and by growing product power. Now to the Tools Group. The Tools Group quarter, not at our standard. But we do see a path forward adjusting to the changing environment. As you may remember, this is where we sell to the text. Those who toil the wrenches, punch the touchscreen and those who appear to be wavering in macro confidence and those customers who under these conditions shift to lower payback or quicker payback items. While the fourth quarter reflects our franchisees and the Tools Group pivoting to match that movement, that customer movement. Sales in the quarter were $513.3 million included in our - and they included an organic decrease of 5.7% compared to last year. Now more to our standard, group OI margins were 21.6%, up 20 basis points, overcoming 10 basis points of negative currency and the gross margin percentage rose 200 basis points, nice gains. As the quarter played out, the franchisee sense the change and redirected their ordering and selling focus to match the customer shifts to lower - to faster payback items. And Snap-On is doing the same, defining a way forward, redirecting factory capacity, adopting smaller ticket marketing focus and launching innovative or quicker payback products that fit the environment. State-of-the-art designs, like our new ratchet for a manufacturer to Elizabeth, Tennessee factory. This next evolution in our ratchet line is 102 design, we've named the Synergy series. We believe it's a game changer for technicians, a significant improvement that helps make repair work much easier. The Synergy is a short payback item that will make a clear difference right away, a 15% thinner head, an inch longer handle a 3.5-inch degree swing area, 20% more compact, all for easier access and quicker work in tight corners that they also come up like chassis areas in modern vehicles. Synergy's internal mechanisms were reengineered to engage the primary drag with 10 contact points versus the seventh in the previous design, greatly reducing the chance of slippage, improving the tools reliability and quality even while under maximum loads. Technicians may be uncertain about the way forward, but they're confident about the synergies. They know with the Synergy. They know it will provide a quick payback. It's thinner, longer, stronger. And going forward, we'll expand that new technology - the new 102 technology throughout the Snap-on lineup, and we believe it will quickly become a must-have all across the industry. Also in the quarter, our Algona, Iowa manufacturing facility to reach the new quick payback, KRSC2430, a 36-inch deluxe shop cart with its with smooth mobility and a substantial payload. It offers a technician economic an attractive way to start the tools but it also allows them to position their instruments adjacent to the workplace, increasing productivity, eliminating the time walking to and from the job. As a particularly special feature, the versal lid on this cart serves as a durable workbench when open separates into 2 sections, showing full and easy - allowing full and easy access to the deep 8-inch top compartment that's underneath. The unit also includes a complete power strip where technicians charge their cordless tools, diagnostic platforms, lights and other electronic devices. The innovative cards also configured with two additional jaws. There's kind of two additional drawers underneath the sliding top, providing quick accessibility for essential and small items preventing lost times from treasure hunting and large drawers or small-scale items. And it's a common problem with other units. And so this will really save time for the text. And like our top-of-the-line tool storage boxes, technicians can customize their cart, selecting from an array of colors and trims and so they can project their own personal identity throughout the shop. The KRSC2430 economical storage, attractive features convenient mobility, we expect it will have strong and continuing to appeal in this uncertain environment. And shifting the product focus also requires some repositioning in the factory. Expanding the capacity to match customer preference, we're doing just that, moving to currently popular items, more dedication to short payback to products like our plexin swivel sockets and the new long nose pliers in Milwaukee, additional cart welding, breaking bottlenecks for our economical storage cart options in Algona and doubling down on synergy production in Elizabeth, Tennessee. Finally, our sales teams are being deployed to help franchisees, giving them added energy and more time in selling shorter payback items off their truck. Well, that's the Tools Group. Shifting tech preferences, pivoting operations to ensure the way forward, adapting products, capacity and sales focus, making the most of our strengths in the turbulence. Now for RS&I. The group results confirmed what we've been saying all along, Snap-on is well positioned to support repair shops, dealers and independents and keeping pace with the growing complexity of the car park. RS&I sales in the quarter were $450.8 million, up $12.9 million versus last year, including an organic sales rise of $8.8 million that was authored by volume with vehicle OEM programs for new models and platforms and by strong progress in undercar for both dealerships and independent shops, gains that served to offset the decrease in the big-ticket diagnostic items. RS&I operating earnings for the quarter were $113.3 million, and the operating margin was a still strong 25.1%, but down 20 basis points, reflecting the mix shift to lower-margin under car and OEM facing and the OEM-facing activities. But just like other segments, RS&I advances are driven by new products. And even the aging car park is filled with diverse and ever-changing models. Light-duty trucks and full-size SUVs are bigger than ever requiring a range of wheel configurations and sizes somewhere over 100 pounds. And at the recent repair industry, SEMA show in Las Vegas, we had one of our answers to that challenge on prominent display. Our new automated armored wheeler series wheel balancers, specifically designed for high-volume shops that require precision and reliability made from robust steel for enhanced and rugged durability. Even a small compact footprint, the balancers intelligent operating system uses sonar technologies to automatically measure both the wheel and RIM, eliminating the need for manual intervention, a great time saver in the shop. And for improved safety, the unit also includes heavy-duty pneumatic for us that physicians cumbersome tires on the spindle, making it unnecessary, protects and physically lift or manipulate the heavy assembly, substantially avoiding is the strain. The balancer also includes the high resolution touch screen and an intuitive interface and an effective ergonomic design. It's a powerful combination of accuracy, speed, durability and safety and the SEMA crowd clearly noticed. So that's RS&I. Shop repair remains robust. Vehicle complexity continues to advance abundant opportunities for a great future. The group has abundant opportunities for a great future and our RSI team has the products to take advantage. Well, that's our quarter and our year. For the quarter, sales up 3.5% as reported, 2.2% organically. OI margin reached 21.6%, up 10 basis points, and the EPS was $4.75, rising 7.5% and against the turbulence. The period was marked by extraordinary positives in the critical industry - in the critical industries that are C&I. The Tools Group not reaching our standard, but displaying margin gains and pivoting to match the technician shifting focus and RS&I, enabling both dealerships and independent shops to meet the challenges of higher complexity in new technologies and the full year 2023 sales of $4.7302 billion, up 5.6% organically, an OI of over $1 billion rising 10.5% and OI margin of 22%, an increase of 110 basis points, 110 basis points like that and EPS of $18.76, up $1.94 or 11.5%. It was another encouraging year. Now, I'll turn the call over to Aldo. Aldo?

Nicholas Pinchuk:

Thanks, Al. The Snap-on fourth quarter and full year. Geographic variation, shifting customer perspective, growing macro uncertainties, all overcome by Snap-on's ability to wield disadvantages making the most of opportunities, continuing its positive and upward trend now demonstrated over multiple quarters and a significant number of years. The quarter did see the change in technicians perspective. And in pivoting with just the Tools Group volume did not meet our standards, but the tools team did blunt the difficulty with favorable mix and RCI driving improvement of OI margins up 20 basis points with the gross margin rising 200 basis points. The story with repair shop owners and managers was somewhat different. They recognize the need to upgrade and RS&I increase this rise in participation in OEM programs and extended its gains in undercar equipment, particularly in the expanding collision space. And finally, we saw C&I register another quarter of increasing importance to the corporation with the critical industries rising double digits and achieving another leap in margin reaching new margins, reaching new and significant levels. And it all resulted in a fourth quarter advancement against some substantial headwinds. Sales were up 3.5% as reported 2.2% organically. OI margins of 21.6% increased 10 basis points and an EPS of $4.75 rising 7.5%, all representing progress and a time when all was not where we'd like it to be. But I believe the bright-line story in this period is the full year sales for the corporation increased 5.6% organically. Opco OI margin rose 110 basis points, another significant advance and a long line of game reaching 22% for the first time, and the EPS was $18.76 up versus all comparisons. And it was all offered by some noteworthy performance of the Tools Group, not encountering the smoothest sailing but still achieving an OI margin of 23.6%, an increase of 150 basis points. RS&I, sales up 6.7% organically and an OI margin of 24.3%, up 70 basis points off a strong base. And C&I, facing a landscape of challenges. We're growing 4.2% as reported 5% organically with an OI margin of 15.5%, up 140 basis points against 50 basis points of negative currency. And perhaps the biggest story of all is the emergence of the critical industry business, growing strong double digits in all four quarters demonstrating that we really can roll the Snap-on brand out of the garage at considerable margins. We see the quarter in the year as demonstrating that Snap-on does have multiple run rates for progress. And if one of our segments is challenged, we can still move forward achieving clear and continuing advancement driven by the other parts of the enterprise. And as such, we're encouraged by our presence and by our future. We believe that with our advantages in product, everyone recognizes we know work and we do make tasks easier. In brand, everywhere you go, among the - everywhere you go in the people of work, the Snap-on sign is displayed and spoken up with great pride. And in our people, a team, battle tested, who find the way forward and upwards despite the challenges, the results of 2023 say it so. And we believe, enabled by those advantages, Snap-on will overcome, we'll achieve and will advance continuing the positive trend throughout 2024 and well beyond. Now before I turn the call over to the operator, I'll address our franchisees and associates. I know they're all listening. I've spoken today with belief and confidence on our current situation on our way forward. I do so principally, but I do so principally because I know the capability and the quality demonstrated over and over by all of you. For your contributions and authoring our achievements, you have my congratulations. For the skills and energy you bring to our corporation every day, you have my admiration. And for the commitment you consistently display for the future of our mutual enterprise, you have my thanks. Now, I'll turn the call over to the operator. Operator?

Luke Junk:

Good morning, everyone. Thanks for taking the question here. Nick, for starters, I was hoping you could just expand. I know you mentioned some of these things in the prepared remarks already, but if you could just expand on Snap-on's most important growth drivers in the Tools Group as we go into 2024 here, really irrespective of what the market is giving you? And if you pivot aggressively enough, do you think that you can grow the tools business this earning?

Luke Junk:

Thanks for that. And then I guess a related question would be the shift in mechanic sentiments that you saw mid fall. Just how do you think that improves the appetite for credit here and as you tracked either originations or just other trends in book, I'm thinking more from the demand side, Nick?

Luke Junk:

Okay. And then maybe a final question. This one might be for Aldo. Just hoping on what happened in the car tools business, specifically this quarter, if we look at the inter-segment, so it seems like things maybe step down quite a bit. I'm just trying to reconcile what you saw in order trends versus your impression of underlying trends in power tools. Is it possible that there is sort of a onetime adjustment in orders to level set inventory on the bans in power tools. Am I thinking about that right?

Nicholas Pinchuk:

Actually, yes, I'd offer that - what you're seeing a phenomenon as you're seeing, as Aldo said, some adjustment there. And if you look at – if you actually look at careful look at C&I, you see they actually had a pop quarter to their traditional customers. But what happens in the power tools business is our new CT9038 came out 18 volt, it sold great, then this happened. And that kept selling, but the bigger ticket items in power tools, like the 18 volts just dropped off and people tended to want the 144 volt. Our supply chains are a little longer for that. We couldn't supply all of that. So you have that kind of situation. But if you look at the Tools Group level, power tools are not down, especially an outstanding amount. It's mostly between the Tools Group and C&I.

Operator:

The next question is from Bret Jordan with Jefferies. Please go ahead.

Nicholas Pinchuk:

Okay.

Nicholas Pinchuk:

No. Pricing, we generally have - except in inflationary, exceptional inflationary times, which we've all been through more or less recently is we get 30 to 40 basis points of pricing, something like that. Most of our advancement basically comes from RCI and new product, which gets its margins. We get our margins for new products. We don't plan changing that approach. We're not really going to make a major adjustment in pricing going forward. This is more about shorter payback versus longer payback. It's the - think of it this way. It's just take a simple thing as a tool storage unit. Okay, you can buy a big epic and boy, they are great. People love them. They bring people up and show them their box, and they say, this is my dream, but that's not a quick payback. That's a longer payback. You got to work a long time and get efficiency from the size of that and the features in that to get a payback. But if you get yourself a cart, you can move from your workplace out into the shop, particularly in some of these independent chefs out into the shop yard or all over the shop. And that gives you immediate savings in time just there. And so that's the kind of thing I'm talking about is that shift to the idea. Is this thing going to pay for me right away, pay me back right away? Wrenches do that, particularly like the synergy I talked about here, which is a leap forward in terms of reliability and access and swing arc and make the jobs easier and able to beat the flat rate faster. So those are the kinds of things we're betting on. We've seen it work before. So I think the good thing about this is Tools Group saw it started to move on.

Aldo Pagliari:

So we had lower spending in the quarter on legal expenses in particular. We had a favorable settlement on a matter. So it was able to reduce our expenditures in the quarter. But the run rate for corporate expenses is running in a typical fashion.

Aldo Pagliari:

$113 million versus $1.08 million.

Patrick Buckley:

Got it. That’s all for us. Thanks guys.

Scott Stember:

Good morning. Thanks for taking my questions.

Scott Stember:

Nick, could you split out the different subsegments within tools, hand tools, power tools, obviously, sounds like color tools were down, but - and storage units, things like that? Thanks.

Scott Stember:

So, going forward, obviously, you're focusing on quicker payback items. So, obviously, that would be hand tools? You're going to start cranking that up a little bit more?

Scott Stember:

Got it. And then just a last question on the bigger picture. You said that the overall market, the underlying conditions look pretty strong. You're not seeing any warning signs for the businesses themselves, demand. I mean O'Reilly reported last night, and they said that their the professional business was up double-digits. So, I just want to make sure that we're not - this is not a canary in the coal mine that the underlying business--

Scott Stember:

Got it. And just to firm up a follow-up on something you said earlier. You would not be surprised to see the Tools Group return to positive organic growth?

Scott Stember:

Got it.

Scott Stember:

Got it. That’s all I had. Thank you.

Operator:

And our last question today comes from David McGregor with Longbow Research. Please go ahead.

Nicholas Pinchuk:

That's a complicated question because of the situation, you know? I mean, I guess, I don't know. I think this way, though, I'm pretty sure we're doing better because we had in the queue some ability to adjust for shorter payback items in those areas. That's pretty much the way I can answer it. Now what I will tell you is - David, this is an operating guys song is that when you're thinking that you're going to have - you're going to have promotions rolling out of your factories and all of a sudden, your customers come up and, say, never mind, we want to go over here. This tends to create a lot of, shall I say, inefficiencies. And so you have to adjust to that. So I don't think we got the full result the capacities we had hoped the capacity expansions we had hoped to get in the fourth quarter because of those changes, they just optimize what you've added. And so that's part of - that's a factor in all of this. Yes, the backlog for - some of the backlog for tool storage was down. So we liquidated some of that, but we still have backlog in those areas. So it's a complicated answer, I think. You might have some of that. But on the other hand, we couldn't fulfill it as much. We couldn't have liquidated as much as we would have had we had full - had been able to roll in the way we had planned to roll in our production plans coming out of the SFC.

Nicholas Pinchuk:

I sort of know what it was, and it was better than that in the quarter and for the year, generally is better. This all tends to come out in the wash though - in the long run. But in the fourth quarter, the trucks were not down. We're substantially. They were still down, but not anything like the Tools Group.

Nicholas Pinchuk:

Yes. Sure. I mean so you would say maybe the - you don't know, but they've kind of liquidated some things. So part of it is delivery - if you pick a particular product and you say a shift to that product, we do have inventory, but the point is sometimes you don't have that product and you have to make changes in the factory, sometimes we couldn't even deliver what they wanted.

Aldo Pagliari:

You see the receivables, the originations were down, and that was more than offset by contract receivables. And similar to the results of the Tools Group, EC originations in the United States were down more than what we saw internationally. It was actually up in terms of EC originations. So that kind of gives you some of the blend.

Aldo Pagliari:

Actually, I was pleased to say, I know you're asking, David, actually, in the quarter, there's less than what would be the typical mix of what we call transfers, RA transfers where they transfer items from the revolving accounts over to EC. There's actually less of an effect of that. But for the full year, it's very consistent with where we expect it to be. So there's been no signs of franchisees using the credit company to finance their operations by moving things from their revolving accounts across I think that's what you're after.

Nicholas Pinchuk:

No.

Nicholas Pinchuk:

Well, if that was me.

David McGregor:

And so what's the take on the regional kickoffs? Just help us think through first half that you're seeing in regional kickoff.

David McGregor:

Right. The last question for me is just maybe on the competitive dynamics. You've been fairly steady in terms of the number of trucks you have on the road now for quite a number of years. gather, maybe there's a few more company-owned versus franchise within the mix overall. But at the same time, your competitors have been increasing the number of trucks on the road. You sense this is starting to have a little bit of an impact on it. Do you feel like maybe there was a little bit of share loss this quarter versus some of your peers?

David McGregor:

Are you seeing any change in franchisee attrition rates?

David McGregor:

Got it. Thanks very much. That’s all I’ve got. Good luck, gentlemen.

Operator:

This concludes the question-and-answer session. I would like to turn the conference back over to Sara Verbsky for any closing remarks.

Operator:

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator:

Good morning, and welcome to the Snap-on Incorporated 2023 Third Quarter Conference Call. All participants will be in listen-only mode. [Operator Instructions]. Please note today’s event is being recorded. I would now like to turn the conference over to Sara Verbsky, Vice President of Investor Relations. Please go ahead, ma'am.

Nicholas Pinchuk:

Thanks, Sara. Good morning, everybody. As usual, I'll start by covering the highlights of the quarter, and then I'll provide an update on our general environment and the trends we see. Aldo will then give you a detailed review of the financials. Speaking about the last three months, I can say without question or qualification, we are once again encouraged fortified by the progress along our runways both growth and improvement. We encountered headwinds and we engaged challenges in a number of geographies still we capitalized on our opportunities, wielding our advantage and overcame the potential for disruption. The franchising network remain resilient generating positive gains through a broad and sharp rise in critical industries expanding what is now a consistent upward trajectory enabled by the confluence of our robust market of growing product lines and an effective expansion of capacity in that business. And that progress was pretty evident in our numbers. They speak for themselves. Reported sales were $1,159 million, up 5.2% from last year, a 4.7% organic rise and $4.4 million in favorable foreign currency effects with growth in every segments. This represents our 13th quarter, well, above pre-pandemic levels. OpCo income, OI before financial services were up 9.7%, reaching $245.2 million, OpCo operating margin rose 90 basis points to 21.2% with higher sales volumes, the benefits of great new products and the ongoing efficiencies of a rapid continuous improvement or RS&I more than offsetting up 50 basis points, a bad news from unfavorable foreign currency effects, 21.2% and 90 basis points. Nice. The operating income for our financial services operation grew $69.4 million from the $66.4 million last year, a 4.5% improvement and the result - and that result combined with the OpCo performance to raise our consolidated operating margins to 25.1%, a 70 basis point rise from 2022. And EPS, EPS was $4.51. reflecting a 37 or 8.9% increase above last year. Strong. Well those are the numbers. Once again strong signifying our corporation’s continuing advance. You see, we again believe that Snap-on is stronger now than at any time in our history and the results they say it so. Now let's review the markets. In vehicle repairs, key metrics continue to be favorable. The average age of vehicles on the road continuing to rise and in turn the number of techs in the garages, in the garage is growing high to high mid-single-digits maintaining consistently positive trends period-over-period, period-over-period. That's clearly upward. Technician wages are robust and continuing to climb. So the market is favorable and the metrics back it up. But more than the quantitative evidence, you get the feeling of optimism potential when you speak with technicians. Recently, I had a chance to visit with our customers’ franchises and mechanics in New York. And I'm here to tell you the enthusiasm they displayed in the industry and the confidence they expressed in their future was something else. It was contagious. Even in this time of turbulence, the message was clear. They see opportunity and they're looking for more, more innovative solutions, that will increase productivity and take advantage of that potential. And their confidence on the way forward is palpable. And we believe they see Snap-on products, brands and people as the best way to ensure that positive future. Vehicle repair is a strong market. We see this confirmed throughout the franchisee network in North America and in our international operations. It's one of the reasons we've expanded capacity. We believe our franchisees and our technicians have never been more prosperous. It all makes sense. The car park is increasingly requires more repairs or greater complexity and our customers, the techs are major participants in that reality. They need - and they need new tools to follow the opportunity. Snap-on is positioned to take full advantage of that possibility. Another important sector for us is the vehicle repair shop owners or managers. These are people who stand right next to the techs, but they buy at different cadences. This is where repairs systems and information group or S&I operates every day with advantage. The vehicle park is changing. The shops have to keep with the upswing model-by-model, new challenges, new challenges that they have to navigate. Electronics to support more features. Automotive systems that enhance driver safety. New body materials to increase durability and reduce weight. Network of sensors to anticipate traffic and road conditions. No power trains. Enhanced internal combustion engines. EVs and plug-in hybrids and the conserved energy and on and on and on. Each of these, each of these trends creates opportunity for garages and they know it. But they also know it requires new more sophisticated equipment. The opportunity - that opportunity we see shines right through political uncertainty or economic turbulence. We see, though that underneath every day when we call on the garages new software to guide repairs or manage the shop. Essential programs to accommodate either sequences of new vehicles, calibration protocols and advanced systems for sensor rays, advanced under car equipment to accommodate the precision - that the precision that supports efficient driving. And we see the shop owners and managers are eager to take advantage of those trends Snap-on has the hardware and software to enable that pursuit bringing to shops and the results in our C&I are confirming the strength of that market and our strong position in it. Finally, let’s discuss the critical industries. This is where we extend outside the garage solving tasks that that really matter. This is where commercial industrial or C&I lives. And where much more international activity happens. This is the arena of critical applications, space declarations, wind power maintenance, subsea mining, smelting that exceeds 2300 degrees Fahrenheit, the mobilization of first responders. All critical environments where the penalty for rearview was high and the need for repeatability and reliability often requires custom tools engineered for a single purpose. In other words, tasks that require a Snap-on solution. Just like in previous quarters, the market is booming. Momentum in multiple sectors like the military, general industry, aerospace, heavy-duty and aviation. Of course, do just see variations from geography-to-geography, this is an international business. Areas impacted by external factors that create disruptions in Europe, with the uncertainty associated with the Ukraine war in Asia where the remnants of the pandemic are still pretty apparent; there's turbulence in China and the weakening of currencies these days are impacting particular countries. But overall, the critical industries are robust offering us significant potential for taking advantage and making significant gains. And in the quarter, we did just that. So our markets are resilient and are on a positive trajectory and we believe that our runways for growth will present clear and abundant opportunities as we move forward enhancing the franchise network, expanding where repair shop owners and managers extending to those critical industries. And building and emerging markets. Rising - rising and going forward by leveraging our broadening product line, wielding our strengthening brand, and deploying the increasing understanding of the work that is the hallmark of the Snap-on team. That's the markets. Now, let's turn to the segments. In the C&I group, third, quarter sales reached $266.4 million, up $9.6 million, which includes $1.6 million in unfavorable currency effects and an organic sales growth of 3.2% above last year. From an earnings perspective, C&I's operating income was $58.1 million, up 11.1% double-digits including $2.9 million of unfavorable foreign currency. And the operating margin was 15.9%, an increase of 120 basis points overcoming 70 basis points of negative currency. We did have some variation across the group - across the group business units with substantial gains in industrial vision offsetting declines in Asia operations. But as usual, the C&I rise showed the power of our Snap-on value creation, particularly on customer connection, innovation authoring great new products, solutions that make critical tasks easier, like our new CT9038 power tool. We talked about this. We talked about this to a last quarter saying the franchisees were waiting for its launch. Well it was worth the wait. It's a special to0l. A three eight inch drive, 18 volt impact unit that, that, that offers compact housing measuring only five inches long. That's why we call it the stubby. The unique silhouette is made possible by engineering the overall housing mechanism to stabilize the electric motor rather than the standard approach of adding a whole independent structure to support the drive components. It's an innovation that reduces overall body dimensions allowing users to navigate really tight spaces and believe me, that's an attractive advantage for engine and suspension work on newer vehicles. And it does that while still delivering 520 foot pounds of bolt break away torque, power capable of busting with even the most stubborn of seized and seized fasteners. It's what you would expect from Snap-on. It's an ergonomically balanced - it's ergonomically balanced, greatly reducing user fatigue. It's equipped with a super bright LED light to clearly illuminate the workplace. It also offers three torque settings and forward and reverse and includes a variable speed trigger enabling techs to apply just that necessary force avoiding the fastener damage that you know, often can happen in tight spaces. The September launch was a big way oversubscribed. Clear testimony to the appreciation of the stubby’s compact power and it's still showing great momentum. The orders remain very strong. It was worth wait. C&I product is encouraging. But there's another story in the group. Our industrial division, extending the Snap-on brands to the critical industries. We've said in the past that the opportunity was there. Always needed was more capabilities to deliver. Well it played out just that way. We did add capacity for kidding and it drove results. Expansion came to the fall of the last year. And this past period was the third straight quarter of clear double-digit growth in the critical industries. And that was what's strong margins. Gangbusters, gangbusters margins, gangbusters growth. It overcame the C&I challenge in Eastern Europe and Asia. And we believe we have much more room to run in the critical - in the critical industry's arena. So we're adding more capability in that business right now to take full advantage. Let's C&I substantial challenges overcome by strong products and expanded capacity to drive upward in the critical industries and there's more to come. Now on to the tools group. Sales line was up organically 3.7% over last year, reaching $515.4 million in the quarter. That's finished with great in a quarter, that finished with great momentum. And the Group's operating income continue to move strongly upward to $113.4, million, and 11% increase, double-digit increase over 2022 levels. Another in a series of those double-digit increases for the tools group and the operating margin was – it was 22% up 140 basis points from last year and that rise and – that considerable rise was achieved overcoming 50 basis points of unfavorable currencies, - a great quarter for the profitability and growth. Now, the third quarter is when we hold our annual Snap-on franchisee conference what call is the SFC. This year the event was a net show with 9,000 people attending, franchisees, guests and of course, Snap-on team all participating in the, in a weekend of special - in a great weekend. It was a weekend of special training. Hands-on encounters with our massive product line and for some fun - for some fun, special Snap-on celebrations, they're really good. The attendees had the opportunity to spend time ordering directly from the tool exit expo floor. And I am happy to say orders were up again this year, which is and that exposed spanned a space of over three football fields where our entire portfolio of products was on display, but it had a wide array of demonstrations and that was specially designed to showcase the Snap-on performance advantage. The conference also provided a number training sessions, helping franchisees expand their business. Seminars and special breakouts, highlighting our product features and unique advantages in critical categories like power tools and diagnostics and we topped off that multi-day event. This is, these are the celebrations with a - of coach buses transporting the teams to downtown Nashville for unique Snap-on’s evening. Boom, shakalaka was the word of the day with another memorable SFC and sightful, education, great, new products, and a special fellowship, a special fellowship that reinforces our unique bond with our franchisees. From my perspective, our van drivers at Nashville spoke enthusiastically about their current businesses and radiated firm confidence in their future with Snap-on. And if you were there, you would have seen it too. During the tool expo, franchisees were able to spend time interacting with some of the new innovative products derived from our customer connections inside game, directly in the workplace handles were big at the SFC and in the quarter and the demand was driven by special new products like our 12 millimeter 6.6. meter Duramax glow plug socket. This product was inspired by a franchisee observing the technicians removing blocking components one-by-one from a diesel vehicle, fender of special intake lines in steering shifts. These items create access barriers increasing the difficulty of executing the very basic repair of just changing diesel glow plugs, a routine test that that was made difficult because of our crowded engine compartment design with minimal regard for servicing. We listened to the franchisee feedback, went to work designed - and new socket longer than the standard to reach the glow plugs from a distance. And with a flex mechanism that guide around the blockers, making - making it unnecessary to remove them. Technicians immediately recognize the considerable time savings that - it made the new sockets very popular. It's another customer connection that transforms a laborious process, making more easier, freeing time and increasing tech capacity and therefore tech income. Also on display was another Display was another example of customer connection, the new FHC 72MPRR, these product terminations are mouthful. Triples but it's a we call it a triple function ratchet. Three tools in one. Again, born out of customer connection directly in the worst place. First the ratchet head can be secured parallel to the handle serving as an traditional ratchet. Next, the head can be adjusted to take any one of 16 available positions, 240 degrees around the handle centerline enabling the tool to work while reaching around obstacles. Finally, the unit can be placed in a free spin mode providing the tech with 360 degrees in continuous rotation, greatly reducing work time in low torque situations. Our customers, the technicians again saw the great benefit of that improved productivity and that recognition made the triple function ratchet a million dollar hit product in just the first month of selling. It was another win for customer connection and a driver for the tools group. The tools group proves a third quarter achievement and momentum fueled by customer connection, innovative insight, anchoring great new products. And with the group’s continuous dedication to Snap-on value creation, we believe the hits in the progress will just keep on comments. Turning to RS&I. Sales of $431.8 million in the third quarter were up as reported by 4.2% with an organic improvement of 3.1%, expansions in the undercar equipment and our diagnostics and information portfolio continued to offset the OEM businesses where - which finished down slightly in a traditionally lumpy arena. OI for RS&I was $104.9 million, up 10%, again double-digits from 2022 and the operating margins was 24.3% represent - which represented an improvement of 130 basis points again against 20 basis points of unfavorable foreign currency. We've great confidence in our RSI business. Our customers and industries, partners feel the same, and that confidence was demonstrated in the latest public recognitions. Recently Motor Magazine shows our Zeus Plus fast track intelligent diagnostic platform as a top tool in 2023. Our premium handheld unit was recognized for simplifying the repairs, guiding technicians through the troubleshooting procedures avoiding unnecessary steps along the way and improving solution, accuracy, and most importantly, reducing the time to identify the proper fit. The Zeus Plus is the top of the line for vehicle repair and the publications know it recognizing our handhelds for our handheld new prominent bright screen, increasing the ease of use in direct sunlight. It's faster processor with more onboard memory enabling greater task efficiency, and it's improved lab scope making component testing much more accurate and when professional tools and equipment knows ask this readers to choose the best new tools as recipients of that publication's People's Choice awards the tech selected seven Snap-on products led the Zeus Plus. The Zeus Plus top of the line indeed. Hardware, software, shaped by customer connection, another and a long line of distinctive and decisive RS&I products driving the group upwards and onwards. We're quite positive about RS&I’s possibilities with repair shop owners and managers as the vehicle industry evolves and the quarter supports that confidence. So those are the highlights of the quarter. Continued strong progress. The 13th straight quarter above pre-pandemic levels. C&I margins up year-over-year volume growth and strong, strong OI margins. The tools group, great products, confident franchisees and strong momentum. RS&I under car repair information activity leading the charge enabling the repair shops in the challenges in today's vehicles. And the overall corporation sales up 5.2% as reported 4.7% organically. OpCo operating margin 21.2% up 90 basis points, overcoming 50 basis points of currency headwinds and an EPS to $4.51 rising 8.9% versus last year. It was an encouraging quarter. Now I'll turn the call over to Aldo. Aldo?

Nicholas Pinchuk:

Thanks, Aldo. Well, that's our third quarter. You know, I always say as the third quarter could be somewhat squirrely, not always indicative of trends. That's because of the SFC and the vacation seasons around the world. But having said that, the last three months haven’t been encouraging. We took on some significant headwinds, the war in the Ukraine, and the uncertainly in China, both politically and economically. We engaged those challenges came through at all with clear progress. New heights across the board. Continuing our - it all, continue our upward trajectory movement, the upward conjecture we've been on for some time. We spoken quite a bit about capacity constraints, first in the industrial business and later in the tools group, born of the increasing demand for our solutions. And in this quarter, we clearly see the power of such expansions wielded by capable of experienced team enabled by decisive advantages, and products, and brands and applied in markets that are critical and resilient even amidst the challenges. The industrialization is performing as we said it would. Clear double-digit growth and strong profitability now, demonstrated for three straight quarters as its new capacity has come online. And the tools groups starting to see the very early effects of that capacity propulsion closing out the quarter with great momentum and with significant rises in overall profitability. At RS&I, not capacity bound, but establishing a strong and profitable position in the repair shops with software strength like our Mitchell 1 systems, diagnostic ascendance like our decorated Zeus Core to Intel and by clear answers to challenges of repair complexity up and down the under car equipment line, continuing the steep upward trend in that broad product arena. This was an encouraging quarter. You can see it in the results. C&I sales up 3.2% organically, external sales, particularly robust. Significant gains in critical industry overcoming the uncertainty of Europe and Asia. OI margin of 15.9% up 120 basis points against 70. Again, 70 basis points of unfavorable currency. The tools group sales was up organically 3.7% close to target exiting the quarter with momentum as the expansion start to help and an OI margin of 22%, up 140 basis points. Again overcoming 50 basis points of currency headwinds. In RS&I, sales rising 3.1%, OI rising 10% and the OI margins reaching 24.3%, an uplift of 130 points. And all drove the corporation higher. Sales were up 4.7% organically. Overall OpCo operating margins were 21.2%, a gain of 90 basis points, 90 basis points against 50 basis points a bad currency and all of that drove an EPS of $4.51, up versus every comparison. And we believe that with our decisive and widening advantages in product, the Snap-on value creation process, customer connection and innovation, people keep - will keep rolling out powerful new products day after day. Our advantages in brands Snap-on remains the outward sign of pride and dignity that working men and women take in their profession. Everybody knows it's true and advantages in people. Our battle tested and capable team people that expect to rise even against difficulties. With those advantages amplified by capacity investments and applied to resilience and critical markets we believe that our enterprise will rise on a clear and continuing positive trajectory through the remainder of the year on into 2024 and well beyond. Now before I turn the call over to the operator, I'll speak directly to our franchisees and associates. My friends, this was an encouraging quarter. It was hard one against significant turbulence and it was driven by your constant dedication and effort. For the success in our third quarter delivered by your hands, you have my congratulations. For the extraordinary capability you bring to bear every day and every situation, you have my admiration. And for the unwavering confidence you consistently express and clearly demonstrate in the future of our enterprise and our team, you have my thanks. Now I'll turn the call over to the operator. Operator?

Patrick Buckley:

Hey, good morning guys. This is Patrick Buckley on for Brad. Thanks for taking our questions.

Patrick Buckley:

Last quarter, you guys called out the demand exceeding capacity in a few tools product lines. Did you see that mix mismatch balance out this quarter? Or has some of the trends persisted there?

Patrick Buckley:

Got it. That's helpful. Thank you. And then, within your OEM dealership customer base, you guys will –in that RS&I business you called out some weakness and lumpiness. Is overall demand pretty healthy there or what exactly is the driver?

Patrick Buckley:

Got it. That's helpful. That's all for us. Thanks guys.

Operator:

Thank you. And our next question today comes from Gary Prestopino with Barrington Research. Please go ahead.

Nicholas Pinchuk:

Good morning, Gary.

Nicholas Pinchuk:

Yeah, sure. They were up mid-single-digits. So, this is a nice we like this kind of thing because it shows we're going to keep growing in that sort of range we expect to grow. It's been upward during the pandemic, it have been up more higher at some points. But generally mid-single-digit growth is pretty good for us. We were kind of very encouraged by that idea. You know, you got to remember though Gary, as you know very well, these things are just orange. You know, they are orders. They are not necessarily sales and those orders are spread out over six months or seven months. So it's hard to correlate them to anything in particular, but having said that, having orders up mid-single-digits is better than a poking an eye with a sharp stick. You know, it's okay. We kind of like that.

Nicholas Pinchuk:

The thing is, is that you would think that would be logical. I would. Yeah, for sure, it bodes greater emphasis on electronics and software and other highly - high tech things like calibrations and things like that, which are the words of the day, then they are now, and then you are going to see a continuing upswing of that investment and the capability and value and revenue and profit generated by that stream. But I'm not so sure that hand tools will be attenuated, because as we look backwards, you know we remember this industry in the 90s where the number of trouble codes, electronic trouble codes on a car were measured in dozens. Now they're measured in tens of thousands and the demand for handle tools is only going up. So I would, I'm not so sure that hand tools will be lessened. I believe that software and electronics and diagnostics and calibration will be increased. That's what I would say. Now, by the way, the hand tools are pretty good margin. But it’s hard to predict those, because like I try to explain and explain since I was putting out with the diesel plug, gold plug sockets and the triple flex function in ratchet. Really these are things that are observed after the cars on road and you see the struggles that the technicians are having and you would enable them. And so I would anticipate they will continue to be in demand as we go forward. We haven't seen any abatement of that demand even as we've seen a growth in the electronics and calibration business.

Aldo Pagliari :

That will be the neighborhood actually of - I think our rate year-to-date it’s put them all together is around 22.9% or something like that. So we are in the ballpark area. So I think it'll be in that neighborhood in Q4 We've had some favorable outcomes on reducing our state taxes along with some other items. But that's what benefited Q3. In order to Q3 last year it was even better. So sometimes there's variation that occurs from time to time. But 23% is about the right number I think we're going to get to this upcoming full year.

Nicholas Pinchuk:

Actually you are looking over a year we had you know kind of a - what 6,7,5,6 cents impact for taxes year over year each quarter. Negative impact. Yeah, so we still were up 8.9% even with the $0.37 even when that $0.06 impact.

Operator:

Thank you. And our next question today comes from David McGregor with Longbow Research. Please go ahead.

Nicholas Pinchuk:

Hi, David.

Nicholas Pinchuk:

Yeah, that's a complicated. Look, it's hard to predict, of course, this is like shooting darts in the dark or something. But, look, I think I think this is the situation. First of all, I want to correct just a little bit. The dealership business itself was not down. The OEM programs were down some, but they were still at a relatively historically high levels even though they backed off a little bit, year-over-year. So we haven't seen what I would call a significant pullback in the OEM programs at this point. Having said that, the OES, the UAW strike, I used to work for the auto companies themselves, and they are cash monsters, you know, they eat cash like mad and so it could happen as the strike goes on longer, you could see some diminishment in that business, in that particular business. Now, when that would hit, I'm not so sure because, they might not cancel programs. They must just delay some or they may they may in fact cancel future programs. Not so clear how they would play out. But it is a possibility that that would happen. Regarding the dealerships themselves, I don't necessarily – I think the effect on them is unknowable because sometimes if they don't get new cars, they just turn more attention to repair and parts. And so this is good news for us. Sometimes they pull in the back down the hatches and reduce. But generally I think they tend to look at more at repair and parts if they don't get the new cars and that's not so bad. So I see that as being the two possibilities playing out.

Nicholas Pinchuk:

I think it’s 5, to kind of mid-single.

Nicholas Pinchuk:

Right.

Nicholas Pinchuk:

Sure.

Nicholas Pinchuk:

I guess. I don't know, I think I'm not quite sure I understood exactly the import of your question, David. But, but the thing is, the way I see it is, the capacity is getting better. Even if you have the building up, you can start putting in the machines there's a ramp up period. You don't have this worse and so you kind of get this, it starts to help you. The first the first product that comes out is the help but it's not so clear how much of a help will be. I think, you'll still see us in a fourth quarter trying to stick handle around the capacity issues and that's part of the thing that's here. But that's stick handling will get more – less complex and therefore we should be able to take more advantage of the orders. But the timelines, the time constants associated with that are always pretty hard to predict, the dependent on your ability to wrap up, which we have a lot of faith in and it is dependent on the nature of the orders applied against those. I would simply say that looking forward we feel like we're in a better position than looking recently backwards.

Aldo Pagliari :

No, the overall margin performance is pretty solid as you saw across the board. Sure, there are incremental cost and expediting expenses and elements of over time of overtime having to be expended. But at the same time, we with the supply chain improvements that have occurred over the past 12 months or so, we have more resources to turn our attention to RCI initiatives. So, David, well, there is a lot of challenge in any quarter we expect to rise the occasion and try to offset those incremental costs. But yes, there will be some incremental cost involved, but the tools group and the other segments are able to offset that.

David McGregor:

Great. Thanks gentlemen.

Operator:

Thank you. And our next question today comes from Christopher Glenn with Oppenheimer. Please go ahead.

Nicholas Pinchuk:

Well, look I think this a first of all, I would say that we haven't plumbed the complete ceiling of the first capacity expansion. By the way, just as a commercial, if you want to, if you want to behold the capacity expansion, you could look at it and I think the back page of our annual report this year. So, it's right there. Pretty, pretty sizable thing. And so we're still figuring out how to wheel that. That's how it works. You start out and it's pretty good and then you do better, better and better. So I think we have some, some ways to go there. What I'm talking about adding is, we just added a new machine shop, just for the critical industries in that space. And so that's a particular product where we used to have to outsource them. They took longer to do and we weren't as effective in getting them out. And so we decided to do it ourselves in-house. And so we see that will match up one, we can we can be more efficient in sourcing, which is a big factor for us and two, we can be more creative and actually matching the direct demands that customers want. So that's what I meant.

Nicholas Pinchuk:

Well, look, I think, I think this, first of all, we are very working capital intense. So, as we move upwards, you tend to use some of that cash for working capital. Although, we're in an era where we were, we used working capital to cushion ourselves against the difficulties of the pandemic. So, some of that go way out. We look hard at our dividends, which we have paid every quarter since 1939. And I love to say at this point have never reduced it any quarter since 1939. And so, perpetuity is our guiding line on dividend. So we'll look at that again, we’ll look at that. And then, you have things like pension and you have, you have things like acquisitions, which are important to us. So, we have a landscape of acquisitions, which will constantly look at. Like, I always say, some are big, some are small and we're not afraid to make a big one. So I kind of like having a war chest for that, especially in these tides when the when the interest rates are pretty high. And then finally we look at buying back opportunistically shares.

Nicholas Pinchuk:

I'm not seeing any. I guess we see a little bit more availability. I'm not sure actionability is any better or not. I think there's been a lot of discussion of that. I think bankers – every bank that you see wants to talk about that. But I don't see much difference in that regard. You would think prices would be coming down with the maybe with interest rates rising. I don't know but - I don't see that. We see a little more availability, though. Little more availability.

Nicholas Pinchuk:

I think that is fair to look, I think, especially sense there's an accelerator there, Christian. I've been in a shop I am ten1years. And for most of the years technicians were growing at 1%, 1.1%, that was just this. It was really like, a metronome. 1.1%, 1.1% , 1.1% And now it's growing mid single digits. And so, this has got to come in and accelerate for us because one, they'll be more technicians and two, the new guys need to tool up. Now, of course that tool up takes on different shapes. So, for example, they may not be buying the top of line boxes right away. They may be focused on cards, which in fact if you looked at our tool storage business in the past quarter, it was heavily guided to cards. And so, we're seeing some of that effect right now. What they do need to tool up and one of the great things about it is, we spent, I think we're like thousands of schools around the country trying to make sure that people understand that the Snap-on brand is the most powerful brand that repair making students Snap-on customers for life. And I think we see that as they come out into the marketplace. So growing Texas music to warriors.

Nicholas Pinchuk:

Sure.

Scott Stember:

Good morning guys. Thanks for taking my questions.

Scott Stember:

Hey. Within the tools, could you just tell us how some of the sub segments did, hand tools versus tool storage versus diagnostics in power tools?

Scott Stember:

Got it. And as far as the sales after van versus into the van.

Scott Stember:

At the sell-in – sell-through was was essentially the same as sell-in.

Scott Stember:

Okay. Got it. And then just last housekeeping question I saw the corporate expense up five plus million. What was that related to?

Scott Stember:

Got it. That's all I have. Thank you.

Operator:

Thank you. And our final question today comes from Luke Junk with Baird. Please go ahead.

Nicholas Pinchuk:

No. I don't - I look, I think this time material wasn't a major factor. Tools group is sort of over that, you know. And so I don't think you're going to see that. I think the tools group is just on a good - what, what you eat. But by the way, all the - lot of the things you mentioned, like product mix and all that that wasn't on it. It's all every quarter there. Here's been like this, every quarter is like that. They're always a mix of things that happen in the tools group. So we just simply try to balance them so they drive things upwards. This quarter, we got a nice dollop of good margin business. The hand tool business is pretty good. And by the way, when you take a customer connection and you solve somebody's problems, that's why I try to talk about those two things. When you get the glow plugs out in a substantially shorter time, people want that and you get your margins for it. It might seem arcane, but that's the kind of stuff that gets you money. When you provide them a triple flex ratchet, where they can use three different things that are having problems getting around them, they will pay it for it. And that kind of stuff works for us. So most - I think one of the things that's been driving our margins in this period and all the periods has been a relatively robust product activity. Now, one of the things that did happen, I think fairly is during the pandemic when supply change started to be a problem, we were focusing on our engineers on substitution somewhat and took away new product capacity, because the engineers, we only have so many engineers, some of them are working on trying to find components that you can actually source, so you can deliver. But now that that's all over, we can turn the engineers on new product again. So the machine starts rolling at full speed. So we feel pretty good about this actually going forward.

Nicholas Pinchuk:

Well, I don't know. I mean, I think we'd like to see the software mix go up. I mean I think you're going to see that software is up nicely. I mean Mitchell 1 had a better, nice quarter. Mitchell 1 had a great quarter, people or the repair shop owners or managers, or whatever they and we see that building there. So we think we got that on with some great new adjustments and we got more coming. You got the diagnostics business, which will which will I think as we move forward new offerings will drive that business. And - but undercar equipment is lower - is lower profitability, but in the context of relativism they are I don't know, I believe at all-time high in profitability for them. So when you compare year-over-year, you're getting a positive margin contribution from those guys. So what we have here, I mean, I think the way forward is somewhat what you're talking about, the way forward for RS&I is more software, but also we believe we can raise the margins in things like the equipment business. Because we have been doing it and they're at an all-time high now and going upwards. So we see those to be the two, I guess factors in that situation. So that's where I see. So I think pretty good things. But look, RS&I with good sales and equipment with good strong sales and equipment that what were they, 24.3% up 130 basis points, that's not shop liver. So they seem to be able to keep improving, go back and look at the results. They keep going upwards. I think that'll continue.

Nicholas Pinchuk:

Sure.

Sara Verbsky:

Thank you all for joining us today. A replay of this call will be available shortly on Snap-on.com. As always we appreciate your interest in Snap-on. Good day.

Operator:

Good morning, and welcome to the Snap-on Incorporated 2023 Second Quarter Results Conference Call. All participants will be in a listen-only mode for the duration of the call. [Operator Instructions]. Please also note that this event is being recorded today. I would now like to turn the conference over to Sara Verbsky, Vice President of Investor Relations. Please go ahead, ma'am.

Nicholas Pinchuk:

Thanks, Sara. Good morning, everybody. Today, I'll start the call by as usual, by covering the highlights of the second quarter, and I'll give you my perspective on the environment and the trends we're seeing. A long way we'll cover the markets. They're encouraging actually. And I'll take you through the segments and the advancements we've made. Then Aldo will provide a detailed review of the financials. We see the second quarter as a period of significance. Sometimes you see a performance where you breakthrough into new heights. And this is one of those times. I'm going to tell you why we believe that to be true. In some ways, though, it was similar. This period was similar to many periods we've seen over time, as we continue to have significant headwinds. And there's always turbulence variation from market-to-market. But we believe it's our job to confront and overcome these obstacles, and we did just that in the second quarter by wielding the strength of our advantages, executing on our strategic runways for growth, making the most of our runways for improvement, and by relying on the skills and dedication of our people. And once again, it paid off the numbers screen it's sold, but here they are. As reported, second quarter sales of $1,191.3 billion were up 4.8% from 2022, including the impact of $8.3 million of unfavorable foreign currency translation. Organic activity was up 5.6%. The 12 straight quarter of year-over-year expansion beyond pre-pandemic levels. That's a trend that demonstrates that we believe it is a solid consistency during pretty uncertain times. Now let's talk about the earnings. OpCo operating income for the quarter, including the effects of unfavorable foreign currency was $277 million, up 12.3%. And our OpCo operating margin, the operating margin -- it was 23.3%, up 160 basis points from last year, BAFO. When I said new levels, I mean it. For financial services, the OI of $66.9 million represented an increase of $1.6 million, and it all combined to author an overall consolidated operating margin of 26.8% up 130 basis points from last year. And the second quarter EPS, it was $4.89, up $0.62 or 14.5% from last year's $4.27. I think I'll say it again, $4.89, up 14.5%. The productivity and profitability of Snap-on operations shining through as the supply chain viscosity diminished. We believe Snap-on is stronger now than ever before, and the quarter's profitability makes that crystal clear. Well, those are the overall numbers. Now let's speak to the market, auto repair. Again, this quarter, it's favorable. Miles driven are up. Spending on vehicle maintenance, up. Technician count, up. Technician wages, up. Consistently positive year-over-year trajectory across all these central categories. Drivers in vehicle repair are fairly understood. Car parks growing, getting older every year, and every year, the tests involved in maintaining and repair the vehicle park get increasingly complex, requiring more hours, greater scale, increased wages and more sophisticated tools, hands or power or data-driven tools. There's a significant need for more technicians and greater capabilities. The competition for that talent is growing, and it's being reflected in the rising wages at an everyday level. I think you can see this demand when you're trying to schedule a maintenance appointment or just by visually seeing abundant of cars and trucks in the repair base or parked outside, crowded around the shops waiting for their turn to get in. And in fact, just this month as with a group of franchisees and customers in Bristol, Tennessee, the NHRA Thunder nationals, the drag races, and they energetically expressed their enthusiasm during our conversations. You can feel their optimism resonating with an appreciation for our products, our solutions, and how we make work easier. So we expect that the trajectory of vehicle repair is solid. And we'll continue through the quarters and on into the years ahead, we expect that vehicle repair is the -- we believe that vehicle repair is a great place to operate and the repair information -- our Repair Information Group and our Tools Group are well positioned to take advantage of that. Now on to the critical industries or our commercial and industrial group or C&I takes our business out of the garage and solves to have a consequence where the penalty for failure is high in a wide range of sectors, where custom tools are often required to get the job done. This is also the segment where we have a most significant international presence, and the attended variations from country-to-country with many versions of economic and social headwinds. In the U.S., the landscape actually is pretty positive. We see progress across a number of sectors. Aerospace is strong. Increased demand in commercial aviation and momentum within space that cover exploration. The military business was another strong quarter of growth now better matching actual needs. Natural resources continue to advance in oil and gas and wind after the uncertainty of the last fall, energy repair is a positive place to be. Also begin the period with industrial transportation. Supply chain turbulence, I think has raised the attention on rail and heavy-duty fleets, society now more than ever sees the essential need to keep commercial supply moving and it's accruing positively for us. Now there are tepid spots across the globe. Place is traumatized by the Ukraine war, we see that weaknesses in some of the agent Pacific operations. But one of the clear and large positives in the period is the general rise of critical industries. And our industrial division is well positioned and it's taking advantage with this capability to customize products to a large number of applications, and it's working. Our critical industry teams are on an upward trajectory utilizing their capability and the enhanced capacity to capture significant gains. Overall, the story of Snap-on outside the garage looks quite promising. And as we move forward, we'll continue to capitalize on an abundant potential. And as part of that, we'll keep engaging Snap-on value creation, customer connection and innovation, developing profitable new products and solutions delivered by the insights and knowledge gains standing next to the customers right in the work place and will drive RCI all over the enterprise, including in the Tools Group. We will keep working to increase our franchisee selling capacity with efficient processes, with advanced training programs, with social media and digital content and expanded manufacturing capacity to meet the rising demand all combining to take full advantage of the opportunities and continue the positive trends we've seen into the future. Well, that's a market overview. Now let's move to the segments. For the C&I Group, as reported sales rose 1.4%, including $5.6 million of unfavorable foreign currency. Organic volume was up by 3%. A quite strong performance in the industrial division was attenuated by shortfalls in some of our more challenged areas. Power tools had smaller volumes as customers anticipated the arrival of new products in the third quarter. Our European-based hand tool business, SNA Europe, but our Asia-Pacific operations demonstrated growth in several markets, but softness in Eastern Europe and currency pressure in Japan and the yen was weak was some offset. But our industrial vision isn't just growing in volume. The margins are strong and rising. Customized product is a wonderful thing. So C&I OI was $68.1 million, a 12.4% increase over last year. And the operating margin was 16%, one of the highest ever for the group, representing a gain of 160 basis points over the second quarter of last year. The industrial division wielding the capacity provided by our new building in Kenosha registered significant sales progress. In April, we discussed the recoveries of the military business in the military segment. In this quarter, we continued that momentum, capturing significant long-term contracts, our product line, wide and effective produced in the U.S. made the difference. So we believe things look promising for the military business and for all of our industrial segments. Beyond the industrial division and C&I, our specialty tools operation continue to advance, meeting the need for precision with new torque products, covering a vast spectrum of clamping forces for challenging applications. Torque accuracy is rising an importance and Snap-on is ready to capitalize. We are confident and committed to extending in critical industries, and that conviction is anchored by the ongoing expansion of our lineup of innovative products, explicitly designed for particular tasks, offerings like our automated tool control or ATC enabled by proprietary digital imaging technology that scans toolbox, drawers, recording in real time, which tools are required are removed to replace. It's an increasingly crucial feature for aerospace for industrial manufacturing and for commercial transportation operations. Imagine working out of plan or a locomotive engine and unknowingly leaving a tool behind in the workplace. Not good, not good. This is a mistake that could result in a failure in any tight tolerance mechanism, one small item can be a huge problem. Well, ATC has an answer, keeping track of the tools, identifying missing items, tracing who signed them out and where are those to be used and giving the all clear when everything is returned. So the plans can take off. Snap-on critical industries are on the rise and ATC is part of the reason. And in the quarter, we released our next generation of ATC, a larger touchscreen to improve the shop productivity and upgraded processes with the latest technology for seamless integration with any central IT system. And as you might expect, our customers were enthusiastic, sophisticated products for complex products. It's a winning combination for C&I, and you can see it in the quarter's results. Now on to the Tools Group. Organic sales grew 1.1%, which includes 60 basis points of unfavorable foreign currency. Growth in the international markets and a slight improvement in the U.S. network. Based on our franchisees and customer feedback, like I said already, vehicle repair is robust. But in the period, our record demand met capacity constraints before our plant expansion, so we're fully operational, limiting some of the potential possibilities and somewhat attenuating the volumes. But for operating earnings, payrolls in the quarter by $13.3 million or 10.7% reaching $137.7 million. That's almost double the pre-pandemic level. The operating margin was 26.3%, a rise of 240 basis points against 50 basis points of negative currency. Let me say that again, Tools Group OI margin was 26.3% [indiscernible] this is an eye-popping number. So the Tools Group had another positive quarter with substantial profitability. We are confident in the strength of our van network and that believe is borne out of quantitative evidence, franchisee health metrics. We monitor them regularly every quarter. And again, this quarter, they remained strong. So what are you talking about talking to the franchisees at Thunder Valley or looking at the numbers, vehicle repair does appear robust and continues to be so. Now when you think of the Tools Group profitability, which is a pretty important subject this time. You think about hand tools, that high margin lineup was -- they were up -- that was up in the period. And new products led the way. One example of successful innovation that came from another customer connection was a number of franchisees observed that diesel technicians struggling to access sensors on Class 8 semi-trucks that were struggling to do that. So to change the part without risking damage. The path had to be cleared by removing several other blocking components. Believe me, that's a time-consuming process. And so armed with customer connection insights, those customer connection insights. Our engineers developed an innovative design, quickly produced a 3D prototype and confirm that it solved the problem. And that 3D tool, SWR5 90-degree special Crowfoot Wrench is being made right now at our Elizabethton Tennessee plant, and it's getting a lot of attention. It really does make truck repair easier. The techs love it, and we kind of like the margins. Profitable customer connection is one of the drivers behind the Tools Group success. And another example of this quarter is our two piece horizontal bushing adapter set. The BJP1 BKS2 [ph], these names are something, text at a Subaru dealership where they were taking a lot of time to remove and store control arm bushings from suspension setups on the newer models. Our team assessed the procedure and designed two new adapters to integrate with our existing ball joint press, and that enabled the fit for the new -- a good bit for the new suspension and say two hours in repair time per procedure, that's a big savings in the garage generated by customer connection and innovation. SNL a while ago, SNL's [indiscernible] said, it's always something. And it's true. There are always new repair challenges, whether the powertrain is internal combustion, plug-in hybrids or EV platforms. Vehicle architecture is getting tighter, packed with more devices, creating additional accessibility constraints, it's all music to our ears. Our franchisees and engineers observe the work, identify complications and simplify the complex and multifaceted tasks to raise efficiency and keep the world moving. And the attendant value is considerable. You can see that in the Tools Group profits. Now one of the highlights of the quarter was the continuing growth of our big ticket sales. A sign of technician confidence in the vehicle repair shop driving some of that trend was our latest tool storage unit, the KMP1023ZLT7, a 72-inch Master Series Roll Cab paining with a unique apparent scheme we call green envy, a break green body paired with black trim. It stands out and makes a statement in any repair shop, but beyond the eye-popping optics the box is also a productivity enhancing powerhouse equipment, 14 drawers, including three spanning the full width of the unit putting the most important tools of any size right at hand. It also offers our popular power drawer and dedicated space equipment. I guess five power outlets and two USB ports for charging a full array of core accessories. And for the hard to manage small parts, our 2-inch speed drawer, makes for easy organization with green NV color coordinated dividers, custom slots for components of various sizes. The box is already one of our hit products. It really energize franchisees and was well received by our customers. And as I said, it helped keep the big ticket train moving. Well, that's the Tools Group, strong profitability, built on solid foundations of innovative products and franchisee success. Mixed with a considerable portion of RCI gain. Now visible as supply that RCI gain is now clearly visible as a supply chain turbulence receives. And now let's go on to RS&I. Sales as reported reached $452 million that represented a $35.2 million or 8.4% increase. Gains in the equipment and OEM essential programs paired with -- gains in equipment and OEM paired with our successful rollout of our new handheld diagnostic platform. The OI in the period was $110.4 million, up 14.7% or 15.4%. Up $14.7 million or 15.4%, and the operating margin was 24.4%, a rise of 140 basis points. Nice. Nice. As we said, the vehicle repair environment is strong, offering significant opportunity and the second quarter results for C&I says it's so. And the recent launch of our new SOLUS+ diagnostic platform was a big key to that success. Great new features. including a two second boot up, the fastest in the industry and an 8-inch colored touch free with 60% higher resolution, making it much easier for technicians to view in brighter lighting. It supports the latest communication protocols, and it offers access to SureTrack. That's our library of vehicle-specific real fixes, repair tips and commonly replace parts that wheels our proprietary database of 2.5 billion repair records and 325 billion vehicle events. SOLUS+, the franchisees have been positive, the customers have been excited and the sales have been robust. New powertrains are driving the need for extending product lines, including vehicle lifts, enabling independent shops and dealerships to accommodate the new models. So -- and in meeting this opportunity with advantage, part of RS&I success has been our undercar equipment division. It's one of the drivers between our -- behind RS&I's strong growth. Take our Challenger Lift Operation in Louisville. The plant offers thousands of SKUs matched a separate lifting task and the numbers have been growing to meet the specific challenges of EV lifting. And in the quarter, that facility hosted Chief Executive magazine Smart Manufacturing Summit, and the event underlines the power of product customization and driving expansion and the extraordinary ability of RCI to render that low volume production quite profitable. It's that approach that drove RCI's gains. OI up 140 basis points in the quarter and we expect that it will keep doing just that as we go forward throughout the group and all across Snap-on. RS&I improving position with repair shop owners and managers, growing OEM relationships, expanding the product offerings, welding RCI everywhere, and it all combined to deliver substantial growth and strong profitability. The Snap-on second quarter, continued opportunities in vehicle repair and critical industries, progress along our runways for coherent growth and advancements down our runways for improvement. Overall sales increasing organically 5.6%, margins strong in every segment. OpCo OI margin 23.3%, up 160 basis points overcoming unfavorable currency and EPS $4.89, up versus all comparisons. It was another encouraging quarter. Now I'll turn the call over to Aldo. Aldo?

Nicholas Pinchuk:

Thanks, Aldo. Well, that's the quarter. RCI shining through as the supply sky is clear to show the new levels of performance. Vehicle repair continuing its strength, critical industry is accelerating RS&I growth, both in -- growth in both dealerships and independent shops, advances in helping customize shops to new vehicles, OI margin, 24.4%, up 140 basis points. Tools Group growth attenuated. But strong new products, solving specific problems, creating extraordinary value and an OI of $137.7 million, almost double pre-pandemic levels and OI margins of 26.3%, up 240 basis points, overcoming 50 basis points of unfavorable currency. C&I extending in the critical industries. We're opening new capacity, achieving broad growth and an OI margin of 16%. 160 basis points over last year, also overcoming unfavorable currency and Snap-on credit, profits up, originations rising indicating broad confidence in vehicle repair, and it came together for an attention getting overall performance. Snap-on organic sales rising 5.6%, an OI margin of 23.3%, up 160 basis points and an EPS of $4.89, new levels indeed. It was an encouraging quarter. And we believe that these results, representing new heights highlight the opportunities in our markets. They're essential, demonstrate the power of our approach. It creates extraordinary value solving the critical. And most of all, confirms the strength and reliability of our team, capable and battle-tested reliability of that team to wield our Snap-on value creation processes, safety, quality, customer connection, innovation and rapid continuous improvement, all to overcome challenges and drive the corporation higher. And we expect that our decisive advantages -- those sets of advantages and opportunities and approach. And then people will author a continuing upward trajectory even beyond these levels throughout the remainder of this year, and on into 2024. Now before I turn the call over to the operator, I want to speak directly to our associates and franchisees, the Snap-on team. I know many of you are listening. These results do represent new heights. But more than that, there are ringing testimony to your unwavering focus on moving our enterprise forward. Your extraordinary achievements, hard one. Yes, my congratulations. For the capability you demonstrate every day, you have my admiration. And for the unshakable confidence you hold in our path forward, you have my thanks. Operator?

Scott Stember:

Good morning and thanks for taking my questions. Nick, you talked about in tools that there was, I guess, it sounded like your ability to meet demand in certain areas was not met because of production. Can you maybe talk about that and maybe tie that into the decline that you talked about in Power Tools?

Scott Stember:

Got it. Okay. And as far as sell into the van sell-through, it sounds as if probably...

Scott Stember:

Okay. And you would expect that to balance out as you were surprised?

Scott Stember:

And just to be clear, sales off the van [ph] are stronger right now than into the channel. Got it. All right, that's all I have for now. Thank you.

Operator:

Our next question will come from Christopher Glynn with Oppenheimer. Please go ahead with your question.

Nicholas Pinchuk:

Well, every time I have a review, if somebody brings up something that says they got some spot buys still coming through. But in general, like I said, the skies have cleared, and we're going to get a little more benefit, but most of it is out now. Our big problem was, of course, everybody saw commodity prices to go up and freight price to go up. But the big problem for a company like us is we had spot things in a lot of situations, which we're paying 2x or 3x sometimes what the original price was. And so that ends up going in inventory. Just think about it. If you have in trouble getting stuff, you tend to overbuy it sometimes because you want to have it in stock because you want to deliver as the first priority. And so you get yourself in that situation. And so you're seeing that clear. And so what happens in that situation, the advances in new value products and the RCI we've been doing all this time starts to shine through.

Nicholas Pinchuk:

It's pretty stable. We're down a few franchisees this quarter, but not many. It's not a factor for government work, Chris. But -- and we're not -- we're probably not going to add people. We believe that our franchisees sell more because we tell them, you're our guys. And if we do well, so you, and so we believe that subdividing their opportunity probably isn't the best alternative. Now we think we have the world covered. We have, what, 3,400 franchisees around the country. So we think we have most of the places covered. I suppose there's the odd place that we might find that we'd add one or two. But really, that's not going to be a program for us. Our way up is to get the guys to be more aggressive and in this instance, to be able to deliver better. We need to -- we're expanding our capacity, so that should relieve some of the problem. But it's a happy problem actually that people saying we're waiting for your tool storage products.

Nicholas Pinchuk:

It's still about the same -- it's about the same. It's about -- I think it's about 10% and you'd say, Chris, what 5% of that is retirements. You'd say 5% is guys pretty much every year, you'll get that. And so 10% is pretty stable. It had been higher sometimes, but now last multiple quarters has been stable, about that number.

Operator:

Our next question will come from David MacGregor with Longbow Research. Please go ahead. David MacGregor, your line is open.

Nicholas Pinchuk:

Good morning.

Nicholas Pinchuk:

I could let out. Okay. Aldo agreed. Okay, you can answer the question, Aldo. Go ahead.

Nicholas Pinchuk:

I was watching a show last night and somebody said on the show, it was movie and said, electronic prices only go down, Snap-on prices only go up. We don't drop our -- I mean it's because you've got all the promotions and everything. It's hard to put your finger on it. But generally, I don't see us surrendering that too easily.

Nicholas Pinchuk:

I don't know. It could be -- there could be some of that in there. Certainly, that -- the big factor, though, is there could be some of that. You're probably right. There's some of that. But the big factor, I think is the improvements in the face of the idea of no more spot buys, no more of those huge spot buys. So you're seeing that. Actually, we've been making improvements better than we have been showing for some time because of the material cost. And so what you see that is abating. So you're seeing a lot of that. So basically, I don't know where I put it on the foot of more customized product. We did sell a lot of customized products. So that works but we don't necessarily want to back off it. And so when you do have capacity constraints, you do tend to go to that. But on the other hand, when you got capacity constraint, you spend a little more money. You're looking at the SG&A and stuff like that, SG&A is up a little bit. And it takes you a little bit to manage through that. So you got some goes ins and goes out there. But there's a factor. But the big pack is RCI.

Nicholas Pinchuk:

Well, look, I mean, some of this can be plant to plant and production line to production line, but I think you can say in aggregate, that's probably true. That's probably true. You don't get much wind in your sales from that kind of increase. It's not zero though, not zero increase. And so you get some of that. You have some international businesses that came back in this situation. So we had some things happen in that situation. but that's got to be the case right? You didn't get that much volume.

Nicholas Pinchuk:

Active stocks, meaning what?

Nicholas Pinchuk:

It's -- I don't have that number right here, but my feeling is it's moving upwards. But we don't really count the stops so much as we count the technicians and the technicians are growing. So we're getting more technicians.

Nicholas Pinchuk:

Yes.

Luke Junk:

Good morning. Thank you for taking the questions. Nick, Aldo, good to talk. Nick, first question, I'm just wondering the capacity constraints you ran into the Tools Group this quarter, how that might play out in the near term versus the mix of business that you'd expect in the third quarter and what would typically be little bit of a seasonal decline sequentially. And if I listen to the cadence in terms of things coming online either end of this month or into the early part of the fourth quarter. It sounds like you think you'll be in a better position in the fourth quarter overall from a supply chain standpoint. Am I hearing that right now?

Luke Junk:

And then for my follow-up, just hoping you could comment on the trends that you saw in C&I. You mentioned Europe briefly and Asia, you highlighted the weakness that you saw in Japan hoping you could just expand on Europe more broadly in Asia-Pacific, excluding?

Luke Junk:

Okay, I will leave it there. Thanks, Nick.

Gary Prestopino:

Hey, good morning everyone.

Gary Prestopino:

Nick, I know we've talked about this [indiscernible], but I'm really -- I'm a little bit confused here about what's going on in the Tools Group. Could you maybe just talk about the product segments where you had these capacity constraints? I think you mentioned tool storage, but what other products were you having or segments where you're having issues with capacity installers?

Gary Prestopino:

Okay. And then as we work through the year, you're bringing on capacity and this should alleviate as we work through that?

Gary Prestopino:

Were the hand tools typical run-of-the-mill hand tools? Or were they more, like you said, customized? I'm just trying to understand how...

Gary Prestopino:

Okay. I just want to understand what's going on there. And then over time, as things have evolved here, could you maybe -- do you have any numbers or metrics you can circle around? What percentage of what you're doing in the tools or even across the whole company is going into collision repair versus mechanical repair?

Gary Prestopino:

Okay, thank you.

Sara Verbsky:

Thank you all for joining us today. A replay of this call will be available shortly at snapon.com. As always, we appreciate your interest in Snap-on. Good day.

Operator:

Hello, and welcome to the Snap-on Incorporated 2023 First Quarter Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, today’s event is being recorded. I would now like to turn the conference over to your host today, Sara Verbsky, Vice President, Investor Relations. Ma’am, please go ahead.

Nick Pinchuk:

Thanks, Sarah. As usual -- good morning, everybody. Good morning. As usual, I’ll start the call by covering the highlights of the first quarter, and I’ll give you my perspective on what it all means. And then Aldo will provide a detailed review of the financials. Along the way, we’ll cover the markets, the robust gangbusters. We’ll also give you a view of our momentum. It’s been unbroken and vibrant. Once again, the story of our quarter is continued resilience. Our ability to navigate the complex while knowing that with the flip of a calendar -- the flip of a calendar will bring new challenges. You could pick up any significant publication or listen or watch any business show and you will encounter a barrage of concerns, the measures of adversity and contraction. But we know, we can resist the difficulties, and so we have for the past three months and for quarter after quarter. You see, we’re armed with significant advantages. Our market’s displaying resilience; born out of criticality, our brand standing above delivering quality and reinforcing personal pride; our products. They clearly move the world forward by making the critical easier; and finally, our people, our team, experienced, capable and confident. We are encouraged by this quarter, and I’ll tell you why. Our reported sales in the period were $1,183 million, up versus last year by $85.2 million or 7.8%, including $24 million or 240 basis points of unfavorable foreign exchange. Organic sales, they were up 10.2%, increases in every group, our 11th consecutive quarter of year-over-year operating expansion. Our OpCo operating income for the quarter was $259.8 million, including $7.6 million of unfavorable foreign currency, increasing by 16.5%. And the operating margin -- the operating margin, it was 22%, rising 170 basis points over last year. For financial services, operating income of $66.3 million compared to last year’s $70.4 million. And that combined with OpCo -- and that combined with OpCo resulted in a consolidated operating margin of 25.6%, an 80 basis-point improvement. And the first quarter’s EPS, $4.60, up $0.60 or 15% from last year’s $4. So we believe our confidence and our ongoing optimism is clearly justified by the numbers. Now, let’s look closer at our markets. The automotive repair environment remains hot, demand across all disciplines. We continue investing in new products and accommodating the repair challenges of newer models, matching the increased complexity. As platforms change, the modification requires new tools to accomplish the task and we’re keeping pace. Whether it’s an internal combustion engine or an electric vehicle, the techs need an assist, and we’re ready to bring it. The updates create a range of challenges, new challenges, from accessibility issues associated with confined spaces requiring new designs of varying geometries, to tighter engineering challenges fueling the need for precision torque instrument to the increasing number of fasteners and listing our power tools to remove and install parts efficiently to the rise of drive by wire. More electronics -- the more the electronics, the greater the need for handheld diagnostics and special software that can communicate with and manage the neural network of computers and sensors. We’re seeing strength in OEM dealerships. As new models break on to the market, new arrays of essential tools, equipment and diagnostics are needed to service the different and unique characteristics of each vehicle. For independent repair shops, business is booming. If you’re taking your vehicle in for service, recently, you’ve witnessed this first hand, the pays are full and the parking lots are chockablock. And when I speak with our franchisees, they are enthusiastic, saying demand is robust. It’s written all over the numbers. Garages are scheduled further out for shops of all types. Owners see the growth. They know they need technicians. And as you might expect, the rise in the tech count is substantial and the wages are moving up. And then, of course, this is all music to our ears. We believe that with the new vehicle models, the rise of automation, the growing need for precision and the increasing vehicle complexity, we may be entering the golden age of vehicle repair and our numbers say it may be so. So people repair. It’s a great place to operate for our Tools Group and for our Repair Systems & Information Group, RS&I. And we believe it’s only getting better. Now, let’s talk about the critical industries where commercial and industrial or C&I, take Snap-on out of the garage, solving tasks of consequences, representing our most significant international presence. It’s an area where we’re -- I suppose, most subject to global headwinds, but the news is still reasonably encouraging. The critical industries kept rising across sectors, aviation, education, heavy-duty fleets, general industry and natural resources, all up. And the military, once down, is now rebounding with high demand. And for geographies, North America was strong. Europe was improved even in the face of ongoing -- of the ongoing war in Ukraine and the revenue disruption of the Brexit, and Asia Pacific remained mixed, variation across the landscape. But overall, the critical industry markets of C&I showed significant and broad positives, every sector. The first quarter is marked by substantial strides in that arena, and we see more opportunity on the horizon. We believe there’s abundant and ongoing potential all along our runways for growth, enhancing the van network, expanding with repair shop owners and managers, extending the critical industry and building in emerging markets, leveraging our expansive product line, wielding our strengthening brand and deploying the increasing understanding of the task, connecting to the customer, standing face-to-face in the workplace where the tasks are performed, observing the work, turning that insight into innovative new products and some in the future for professionals. And we amplify that endeavor by applying a generous helping of rapid continuous improvement, or RCI, as we call it, driving our productivity and our margin upwards. So, that’s our view of the market. Now, let’s turn to the groups. In the C&I Group, sales of $363.8 million, including $12.5 million unfavorable foreign currency, increased 7% to last year. Organic sales were up 11.1% with double-digit gains in critical industries and specialty torque that precision leading the way. C&I’s operating income of $55.8 million, including $2 million of unfavorable foreign currency, represents an increase of 22.1% over last year, and the operating margin was 15.3%, up 190 basis points from the 2022 level, promising numbers. C&I demonstrated considerable growth, despite the ongoing uncertainty across geographies. One of the factors that’s been attenuating C&I in the recent past was the impact of supply turbulence. The customized -- you heard me say it on the calls, the customized kits with many different products are vulnerable to availability disruption. And one of the drivers behind the C&I rise were the improvements along the supply chain. During the period, we started to clean the logjams and reduced the impacts. The first quarter is evidence of that progress. For some time, we’ve said that the demand in critical initiatives have been strong. It continued in the first quarter. And that positive is rooted in innovative products designed specifically for making a difference in critical paths. One example is our new ATECH 1/4 inch drive flex-head TechAngle micro torque wrench, sure a mouthful, but it’s a great product. It’s aimed directly at the aircraft repair -- where at aircraft repair with a necessity for torque precision is rising. The need for power is increasing and repair and tight spaces is becoming more common. Our new unit works on all three fronts. The new wrench is almost 1 foot long, but less than an inch in diameter configured to facilitate access deep inside engine compartments. It’s also equipped with a 15-degree flex-head design, allowing it to avoid obstacles. And it uses our durable 72-inch -- 72 tooth gear mechanism, enabling the tool to operate with small rotations when the barriers restrict motion, making it tough to wrench. The new ATECH has power, significant power, reaching 300-inch and it’s expanding the range by 20% and increasing the number of applications that tool can cover, consolidating tests from multiple devices into one convenient unit and eliminating change over time, providing -- that’s providing a nice productivity gain. The unit has 4 alert modes, LCD, LED, vibratory and audible. Those four prevent over torquing, even when the visibility is low and the space is constrained. And when combined with the unit’s accuracy of plus or minus 2%, the feature served to keep the fastening right on spec. The ATECH accessibility, power and accuracy protects throughout the aviation sector. It’s another hit product that helped drive C&I upward in this quarter. Well, that’s C&I, on the rise, higher sales, stronger profits, powerful products and more to come. Now on to the Tools Group. Sales of $537.0 million, up $24.9 million, including $7.1 million of unfavorable foreign currency, registering a 6.3% organic gain with high single-digit increases in the U.S. and a low single-digit rise in the international network, and the operating margin -- the operating margin was 24.5%, up 180 basis points against 80 basis points of unfavorable currency, boomshakalaka!. This was a great number for us. We’re really optimistic and encouraged by this. The vehicle repair markets are strong and resilient and they trace an ongoing path of abundant opportunity. And once again, the tools numbers back it up. But beyond the quantitative evidence, I was just with some of our -- our van drivers last week. And their view was incandescently positive. That’s the only word I can use, without equivocation or without question. They say shops are busy. All the product -- all our product lines are in high demand and their technician customers are brimming with confidence. It seems like the people of vehicle repair from top to bottom have great expectations for the way forward. And that positivity is evident in the continuing enthusiasm for big tickets, longer payback items, diagnostics and tool storage boxes. They continue to be major contributors to our results. You can see it in the success of the top of the line ZEUS+ handheld diagnostics units. You can find it in the reception of our latest addition to the EPIQ tool storage lineup. The 68-inch EPIQ limited edition box, toolbox, we call it the Neon Stinger. It’s generated considerable excitement with its eye-catching look, a gloss black body with the newest color in tool storage trim, [indiscernible]. I mean this baby pops. Even at a less than bright light in say, the corner of a shop of a tool storage -- a repair shop, it stands out to any place, giving the techs a chance to make a statement. And it’s not just the glow. It also offers a range of powerful functionality. The speed drawer providing customizable organizations, a power drawer with securable charging space, and LED power top spanning the entire length of the box, fully illuminating the drawers and the tools making them shine like the jewels they are. The Stinger, it also offers a 15 power outlets and 6 USB ports, all to ensure the tech -- cordless tools, lights and accessories are always charged and ready to go. I’ll tell you, demand was strong and the Stinger was a Snap-on million-dollar hit product in a blink of an eye. So the Tools Group, robust demand in all product segments and the momentum train just kept running throughout the quarter. Now let’s speak of RS&I. Sales reached $446.6 million, up $48.4 million or 12.2%, including $6 million in unfavorable foreign currency. Organic activity advanced 13.9% with double-digit increases in undercar equipment and OEM business is driving the game, two big contributors. RS&I operating earnings were $104.6 million, rising 14.2% over last year, and the operating margin was 23.4%, up 40 basis points. Again -- once again, this quarter, software products and subscriptions were a significant plus. Along those lines, our Mitchell 1 division responsible for providing repair information software to independent shops, continue to succeed, pursuing customer connection and innovation by bringing great new improvements to shop efficiency. And this year -- an example is at this year’s meeting of the heavy-duty technology and maintenance council in Orlando, Mitchell 1 introduced our powerful wiring navigation features specifically for trucks. It was immediately clear to large truck professionals that our new software would make it much easier and quicker for technicians to navigate the challenges of electrical issues on today’s ever more complex vehicles, whether powered by internal combustion or battery cells. The feature makes a real difference. It’s a significant aid to truck repair -- to the truck repair world, enabling quick transition from one wiring diagram to another, following the wire without interruption between views. This is a significant time saver for the techs across the industry and the shops are noticing. Mitchell 1 just released another great product. It’s automated work package function for its collision repair software. The new system gathers into one screen all the relevant information needed for collision jobs, overhaul procedures, illustrations and diagrams, all retrieved with the click of a button with one click of the button. One of the difficulties in collision repair is that the multifaceted nature of the task. You need part details, repair procedures, system diagrams, but that information is usually found in separate places in varying categories within the vehicle’s documentation. Our new system combines the data into a single work package that guides the technician progressively through the effective repair. It sounds really simple. But in fact, the consolidated comprehensive information eliminates the 20 to 90 minutes that’s ordinarily needed to prepare an effective guide for collision repair test. We believe that the software will be a big contributor to Mitchell 1’s growth. It’s a clear savings in an area that’s rising in modern vehicle repair. With the increase of vehicle automation and the associated growth in sensor networks, collision repair is increasingly more important, and our new feature is right on target to ease of the way. We keep expanding in RS&I. We keep expanding RS&I’s position with repair shop owners and managers, offering more and more solutions for the day-to-day challenges, wielding customer connection and innovation to essential components of Snap-on value creation, processes to drive winning new software and hardware. We’re confident. It’s a successful formula and RS&I results reinforce that view. So, those are the highlights of our quarter. Continued momentum. Our 11th straight period of year-over-year operating growth. C&I is showing strength, gaining against the supply turbulence of the day, RS&I remaining robust, rising with software and hardware. The Tools Group, a healthy and enhanced van network, aiming for more, organic sales in the quarter, up 10.2%; OpCo operating margin 22% and EPS $4.60, up 15% over last year, a significant increase. It all adds up. It all serves to provide clear evidence and powerful testimony that Snap-on has emerged from the great withering in the COVID, stronger than when it entered and the enterprise is continuing that upward trend with capability and conviction. It was an encouraging quarter. Now, I’ll turn the call over to Aldo.

Nick Pinchuk:

Thanks, Aldo, for that detailed financial review. Well, at Snap-on’s first quarter, it is an encouraging performance, demonstrating clearly the breadth, the depth and the length of our extraordinary advance. The breadth, progress across each of the operating groups. C&I, gaining on the challenge of customized kits amidst supply turbulence and rising above the difficulties of geographic reach in troubled times. Tools Group, continuing its upward trend, taking full advantage of the hot resilient vehicle repair market, reaching yet another margin high. RS&I, riding the wave of vehicle complexity and new model introductions, registering another quarter of profitable growth. The period was positive all across our enterprise. Our quarter also had depth. The record was strong from top to bottom, up and down the P&L. C&I, 11.1% organic growth and the OI margin was 15.3%, up 190 basis points. RS&I, organic sales rising, 13.9% and OI margin, a strong 23.4%, 40 points over last year. The Tools Group organic activity increasing 6.3% more in the U.S., high single digits. And we spoke of the eye-catching brilliance of the Stinger toolbox. Remember -- I mean, it really pops, well, something else that pops is the Tools’ OI margin. It’s something to catch attention. It pops like a neon sign, 24.5%, up 180 basis points directly against 80 basis points of unfavorable foreign currency. All that added up to strength across the corporation, organic sales advancing 10.2%, up big, even in the uncertainty, OI margin, 22% -- 22%, representing a rise of 170 basis points. And the final tally of it all, EPS, it was $4.60, up by a clear distance over any comparison. And finally, our performance is marked by length, by the extended positive trend. It was the 11th consecutive quarter of year-over-year operating gain. The world is evolving as we thought it would. New equipment and software being needed to follow the acceleration of model change and new technologies. The vehicle repair market is looking like it’s approaching a golden age, more technicians, wages rising, collective and individual optimism across the sector. And we sought our momentum extending in the quarter, a positive view that was confirmed by the voice of the franchisees. And moving forward, we believe that the momentum will continue. And we are confident -- we’re confident that we’re positioned to make the most of the abundant opportunities, growing and improving. We’ve done it period after period, and we did it again in the first quarter. You see, we do have device of advantages in our product, authored by customer connection and innovation, easing the way for critical path, making a clear difference with professionals. We have an advantage in our brand, marking the serious and the professional, bringing pride and dignity, like no other name. And we have an advantage in our people, our team, challenge tested and fully dedicated. And we believe the resilient markets and these considerable advantages will enable Snap-on to maintain its momentum and continue its rise into the second quarter, throughout 2023 and well beyond. Now before I turn the call over to the operator, it’s appropriate that I speak to our franchisees and associates, our team. I know many of you are listening. This quarter is encouraging, but those who would ask why or how need only look to all of you. For the considerable part you played in this performance, you have my congratulations. For the extraordinary commitment you’ve given to our team, you have my admiration. And for the unfailing confidence you hold in Snap-on future, you have my thanks. Now, I’ll turn the call over to the operator. Operator?

Christopher Glynn:

Thank you. Good morning, everybody. I was curious, Nick, about the C&I kind of showing some stepped up organic growth there. You talked about the supply chain easing a little bit. So curious what -- if you’re seeing past due backlog kind of diminish here and where you are in that stage? And is overall backlog continuing to grow because it sounds like the breadth is becoming quite assertive.

Christopher Glynn:

Okay. And in the press release, you mentioned the period continues the Snap-on value creation process and you referred to considerable capacity for improvement. Could you elaborate on some of the specifics that undergird that statement?

Christopher Glynn:

Great. If I could sneak one more in, just want to go a little deeper into the military that had been soft for some time, and it sounds like it’s a pretty sharp and resetting levels there. Just curious if you could give some color on -- I think lumpiness is part of the military story, too. So just curious how to factor that aspect here.

Operator:

And the next question comes from Bret Jordan with Jefferies.

Nick Pinchuk:

Sure. Look, hand tools are about -- just with the growth this period. So, if you’re looking for mix, there’s really not a mix story along the product lines, we don’t see. If you step back, you look at it, there’s a lot of product, particularly hand tools, they’re about equal to our growth, give or take, equal to our growth. And in terms of big ticket, you got diagnostics being stronger than tool storage because we just introduced and we introduced the big Zeus -- ZEUS+, I think it’s $12,000. This is a monster, the top-of-the-line handheld diagnostic. And so that’s been selling robustly. And you see that together with tool storage in the originations this quarter. So I think for the selling off -- the selling to the franchisees quarter, you’re seeing a good big ticket -- a little bit more or more with diagnostics this quarter than in past quarters because of the Zeus launch. And then you see hand tools kind of keeping pace with the average. Everybody else is the -- the other cats and dogs are floating around it.

Nick Pinchuk:

I want to answer this question, but Aldo needs to have at least one question. So, I’ll let…

Bret Jordan:

Okay. And one last question for you then on the cost input side. Are you seeing -- what’s the cadence? And whether it’s metals pricing or labor, obviously shipping has come down, but how are you seeing the input cost cadence trending?

Operator:

And the next question comes from Gary Prestopino with Barrington Research.

Nick Pinchuk:

Oh, no.

Aldo Pagliari:

I don’t know if you’re looking at other income, but if we’re looking at that…

Aldo Pagliari:

Actually, believe it or not, Gary, on the cash that we have on hand, we’re earning a much higher level of interest income than what we did last year. You might remember, about a year ago, you’re getting hardly nothing on your money. Now effectively, the corporation is earning about 4.75% on whatever cash it does have.

Nick Pinchuk:

Well, I mean, look, I think the -- sure, there are shops that don’t have diagnostics. I mean, there are guys who think they can do it themselves. And by the way, you can repair it yourself, but it takes more time. And so the more experienced technicians think they can get through in some of them, particularly in truck shops, you’ll see that more. But generally, diagnostics are an upgrade and they’re upgrading the software. And what happens, the good thing about this, like I say in the remarks, is the more drive by wire, the more you need more advancements in both the software and the hardware. It’s one of the reasons why the ZEUS+ has been such a baffle hit, is that it really does move everything forward, bigger screens, make it easier from a hardware point of view, and it’s got enhanced software. And we tried to emphasize that. We keep coming up with ideas like Mitchell 1, like the wiring diagrams for trucks. That may not sound like much, but it’s bad because if you have to keep -- it’s really helpful because if you have to keep trying to find the wire in a new view, it’s a real puzzle sometimes, and they’re holding about collision. Collision is booming. And so writing software for collision, we’re kind of, I think in kind of one of the only few they’re trying to do that, and we see that being very positive. So there’s a lot of opportunity flow through there. Most of it, though, it really depends on the shop. If you’re talking about just the vehicle repair shop, most of them are upgrading what they have already. In some cases, the shop certainly has something. That would be -- in some cases, you’re adding technicians that are using more diagnostics or don’t have a diagnostic now, they’re borrowing. In other cases, if you look at truck or collision repair, they’re just starting to get diagnostics. That’s a little more fertile ground for it.

Nick Pinchuk:

I’ll tell you what, Gary, I don’t know how we can afford to sell it for the price we do. But we do -- we view it as a high value, but yes, the software is more -- when you buy the initial package, you get software for a period of time, like six months in the package. And so then you could take a subscription then that will start after six months or you can wait till six months over and take a subscription or you can wait for six months and buy a title. But if you’re talking about let’s take a look at the discrete purchase would be like buy a title, which would be six months of new software, Zeus higher than the next level down and the next level down. So, it’s higher.

Nick Pinchuk:

Sure. But -- yes, that’s a long time off there because first, what would happen is a diagnostic unit that would handle internal combustion and EVs because they’re going to be sharing the space for a long time. They’re going to be chewing the same dirt on a highway for a long time. And so, the real thing is you’re going to need a broad group of that, both in software and tools. That’s what’s going to happen. Eventually, EVs may take over a plug-in hybrids or whatever evolves in that situation, and that will move the car part. But it’s a long way process. There’s no singularity in here. But once they start to get some presence in the market, you have to start including them in your diagnostic software so that you help the technicians deal with them as you help them deal with the 650-horsepower BMW M5 competition.

Elizabeth Suzuki:

First, I wanted to ask about the financing arm. In terms of your outlook, I mean, do you see risk to originations, if your customers start shifting from some of these bigger ticket items smaller ticket and as credit conditions more broadly kind of tighten, does that have an impact on your customers’ ability or willingness to take on additional debt for those large purchases.

Elizabeth Suzuki:

Yes. Got it. No, it certainly makes sense that the sentiment is a little different here on Wall Street than it is on Main Street. So I get that. All right. Thank you for that.

Scott Stember:

Nick, you’re talking about how collision is booming. I just wanted to flesh that out a little bit. How much of it is just from, I guess, a volume standpoint at the collision level, which I guess you could see with increased purchases of on the car or just collision equipment versus increased demand of diagnostics for ADAS for the collision side.

Scott Stember:

Got it. And just housekeeping in the Tools segment, sell into the van channel versus sell-through, were they pretty much in line?

Scott Stember:

All right. And just last question, just going back to Bret’s question about the, I guess, the composition of the Tools Group. It sounds that tools were up -- or hand tools were up in line with the overall segment. Can you maybe just talk about anything to point out new products out there, or is it different selling tactics? Is it bundling of certain things? Just trying to see what’s there.

Operator:

Our next question comes from David MacGregor with Longbow Research.

Nick Pinchuk:

Not really. I mean, you could say this. Let me say this. Only in this way, not in the Tools Group for sure. I don’t see it in the Tools group. You could argue that, all right, you tend to get garage owners who are also technicians, they are the probably number one buyer of a ZEUS+. So in that way, you might see more of that. But every time you roll out the top of the line diagnostic unit, you’re seeing that. So adjusting for our expectations in that way, I don’t see any change in the Tools Group. If you go to RS&I, while repairs -- software and diagnostic sales to independent repair shops were up, the two big pounders in RS&I was the OEM businesses following the new models and the equipment. But equipment is split between -- pretty much equally between garages and independent. So generally, you’ll see a slight shading toward OEM garages on the RS&I side. You won’t see any -- much of a mix change on the tools side except for the fact that ZEUS+ seems to always -- the big kahuna always sells, has a strong shop by. That’s pretty much it. Other than that, we don’t see any changes.

Aldo Pagliari:

For -- the contract receivables are with the franchisees and the van leases and inventory. So, that’s…

Nick Pinchuk:

David, it’s a logical extension of -- higher credit maybe. But I’m not hearing it. I don’t know. You’re a windshield guy, too. I mean, I don’t hear it in my windshield surveys, nobody is saying that. And I would just offer, our impression was based on how our franchisees are and how they say the technicians are is the balance sheets are pretty robust. So yes, that might happen, but I don’t think we’re seeing it happen now. I don’t think that’s occurring right now. I think this is a pretty robust sector. We haven’t -- we didn’t see it get manipulated during the great [Technical Difficulty] they were more cautious, but they were still pretty plush. So I don’t know. Could happen, but I don’t hear it anyway.

Nick Pinchuk:

Too far. That’s why we’re spending -- factories. Look, that is -- I was at these franchisees. I don’t know, you can take this around many grains, so if you wish, but these guys are telling me they can sell every tool storage box they get. Backlogs go back. I don’t want to really get into that. Sorry. But it’s pretty substantial, probably longer than we would like. But sometimes we wonder -- I’d tell you what, just a key -- looking at sometimes we wonder it is better if the backlog is long. It makes people want them more. I don’t know. You know what I mean? Because everybody wants a Snap-on box, it seems. So maybe it just makes it more attractive, like if you have to wait for a car for a long time. But we’d like to bring this backlog down. That’s why we are enhancing our factories in all categories really. Virtually all of our product lines are up to the eyeballs and trying to turn out the factories. But the one that chases the most is tool storage because everywhere we go, people say, I need more. I need more. I need more.

Nick Pinchuk:

Because we offer discount packages all the time. That’s part of the reason to buy now. You could say, okay, you don’t have to have the discount package. But in reality -- in reality, David, our franchisees are conditioned to sell off a kind of deal. Our art is to make that deal attractive but leaner or richer depending on how we want to move the product.

Nick Pinchuk:

Actually, I don’t worry so much about hand tools. I don’t. I mean, hand tools have been strong come hell or high water. I mean I think -- I mean I only been here 15 years. So maybe that’s not long enough. But the thing is it seems though hand tools -- if you’re talking about the longer payback items, like I was talking to Liz, sooner or later, sometimes, the psychology of it all breaks through and even the guys who are working every day and pulling in the money, they say, I want to keep my powder dry for a while, sometimes. But that’s a psychological balance, which I think right now there’s tremendous reservoirs of optimism in the people of work. It’s different than the big companies. If you look at the National Association of Manufacturers and you look at small manufacturers versus large manufacturers, there’s all of a sudden a big divide between them in terms of their optimism, their outlook. The small guys have almost never been higher. So, I think this is part of what it is. I think there’s a lot of talk. As you say, there’s a lot of talk and just we saw -- I’m not saying it’s wrong or anything like that. But when you walk in -- when I walk in a garage or meet the franchisees, they’re saying, who’s this guy? Is this guy, Paul? I don’t even know who he is.

Operator:

And the last question comes from Luke Junk with Baird.

Nick Pinchuk:

Well, look, -- I like to do this. So I’ll do this. Look, in C&I it’s simple. Critical industries, boomshakalaka!. Critical industries are the highest margin business in that area. And the margins are robust and they did pretty well. And like we talked about the military and I don’t know if you heard that call, but the military tends to be -- is the base by base type of product we’re getting that’s moving it. And that tends to be pretty good. So I think that’s one factor you’re seeing there. That’s pretty strong. They were up -- the critical industries were up greater than 11%. And that’s what drove the margins I think, principally, There were other things. I mean another thing is that generally, the supply chain is getting better, but some of the stuff you go out and buy a whole bunch of stuff on -- when you spot [ph] buy, you buy a lot because you don’t want to have to not have them. So some of that stuff is working its way through. So it’s a very complex mix. We are seeing some abatement. That should continue. But mostly, the big factor there, the 190 basis points had to do with critical industries doing well. The customized kits are great for us and they sold -- we broke some of the bottlenecks, and we did well in that situation. So that’s C&I. If you look at Tools Group, it’s -- there’s no product mix story that I think guys were wondering; if there were, it wasn’t that. But it is the fact that there is an attenuation in the commodities, so the commodities, which Tools Group is very vertically integrated, so they buy commodities in a lot of situations. So they get a nice pop from that. And so, they’re getting some improvement in that situation. Of course, they’re taking their foot off the pricing in concert with that. And then the Tools Group has been hammering away at RCI. So, you see a lot of that happening in this situation. So, we think the whole thing is sustainable. Now that -- I’m not telling you that the OI margin for the Tools Group is going to be the same next quarter, but we don’t think they can’t -- we believe they could go higher. Not necessarily next quarter, but we think there’s room to move up from RCI and a rationalization of the situation.

Sara Verbsky:

Thank you all for joining us today. A replay of this call will be available shortly on snapon.com. As always, we appreciate your interest in Snap-on. Good day.

Operator:

Good day, and welcome to the Snap-on Incorporated 2022 Fourth Quarter and Full Year Results Conference Call. [Operator Instructions]. I would now like to turn the conference over to Sara Verbsky, Vice President of Investor Relations. Please go ahead.

Nicholas Pinchuk:

Thanks, Sara. Good morning, everybody. Wow, it's been some year and quite a quarter. China knee jerking from Zero COVID and strict lockdowns to living with COVID in unprecedented virus explosion, diminished but still continuing spikes in the supply chain, the ongoing Ukraine war, the emergence of -- the reemergence of Brexit and now the rising shadow of the recession, echoing in almost daily public pronouncements. And thru it all, Snap-on delivered another in a long line of encouraging performances. We'll go through it. Starting with the highlights of the quarter and the year, I'll give you my perspective on the results, the market environment and our progress. And after that, Aldo will move into -- as usual, Aldo will move into a more detailed review of the financials. The fourth quarter was encouraging. We believe it emphatically demonstrates the continuing resilience of our markets and the capability of our operations to achieve in the face of difficulty, wielding the power of our product our brand, our people and our strategic position. It all combines to serve as clear evidence of what we already know. Snap-on is a unique and extraordinary operation. The results for the fourth quarter serve as more testimony to that fact, and they are an unmistakable demonstration of our continuing momentum. Of course, we did with the differences from group to group and within the operations, but we believe the overall results are compelling. Fourth quarter sales of $1.159 billion as reported, up 4.3% from 2021 included a substantial impact from unfavorable foreign currency of $37.7 million a 370 basis point headwind, and an organic sales increase of 8% over last year, and that represented a 22.7% rise over 2019. This now represents the corporation's tenth consecutive quarter above prepandemic levels. It's a trend of, I think, some significance in uncertain times like these. From an earnings perspective, our opco operating income for the quarter, including the impact from unfavorable foreign currency was $248 million, up 6.8% compared to 2021 and 44.7% above the 2019 pre-pandemic level. The OI margin for the quarter, it was 21.5%, improving by 50 basis points over last year and 360 basis points over 2019. It's the same resiliency that's been demonstrated over the years as we paid dividends every quarter since 1939 without a single interruption or reduction. In fact, in November, our dividend was raised by 14.1%, marking the 13th straight year of increases. It's more a testimony of Snap-on's consistent performance through varying environments. This is just another one of them. For Financial Services, operating income of $63.9 million was down from 67 point -- $63.9 million was down from the $67.2 million in 2021. That decrease reflected the forecasted -- our forecast to return to more historical provision levels, but all the while keeping delinquencies flat to last year. And our overall quarterly EPS reached $4.42, $0.32 or 7.8% above 2021 and up 43.5% compared with 2019. Well, those are the numbers. Now to the markets. We believe that automotive repair remains very favorable. It makes sense. The average age of vehicles continue to increase. The complexity of repairs is rising steeply as new platforms enter the vehicle park, and enter they have, starting in dealerships. And we have seen a resurgence in dealership projects despite a still recovering supply chain. Changes in internal combustion, the rise of electric vehicles and the expansion of vehicle autonomy have made dealerships eager for new equipment to support complex repair test of the evolving vehicle park, and we see it. Projects and powertrains aside, dealerships continue to see healthy demand in repair and maintenance and in warranty, driving the need for shop expansion and more technicians. You can see it in the macros. Repair spending, technician numbers, technician wages, all up. Our dealership segment is expanding. And for independent repair shops, confidence remains sky high across the board. Shop owners and managers confirm that demand for repairs for technicians over complex skills are all rising, and our sales growth in that sector mirrors that enthusiasm. We believe we're moving into what we can be called the golden age of vehicle repair, and our Tools Group and RS&I group are uniquely positioned with the product, the brand and the people to take full advantage, even in the midst of turbulence. You can see it. Now for the critical industries, where our Commercial & Industrial Group, or C&I operates. We continue to see progress but the group spans wide jurisdictions. And as such, various headwinds across the geographies and the industries have attenuated some of those gains. For geographies, Europe with the war and the reemergence of Brexit and China impacted by the COVID chaos were a stark contrast to relatively strong North American markets, a lot of variation. And the range in variability among sectors also continue to be a challenge. Natural resources, heavy-duty fleets, general industries and international aviations were robust, but the military area remain challenged. Overall, however, order demand for most of the critical industries has been strong, and we believe that's a great signal for C&I's future. So C&I does have challenges across geographies and the segments, but we have made advancements, and we see opportunities for tomorrow. Going forward, we believe we'll keep moving down our runways for growth, our wide runways for growth. And as we proceed, we're also fortified, as all of you have heard before, by our Snap-on Value Creation processes, safety, quality, customer connection, innovation and rapid continuous improvement, or RCI. They're the core processes that drive our ongoing progress, especially customer connection and innovation, growing our product line. You see, our franchisees and our direct sales force puts us in a strategic advantage, standing face-to-face with professional techs, understanding their individual challenges, showcasing the solutions created by our powerful product and demonstrating their use. Our resilient markets do represent a significant opportunity, and we are there to take advantage up close and personal, like no one else, right where the jobs are done. And it's working. 2022 was a year of substantial headwinds, but our team prevailed with the year achieving new heights. Sales up $4 billion, $492.8 million, up 5.7%, reflecting an organic gain of 8.7% compared to 2021 and a 20.2% organic increase versus 2019. The opco margin for the year was 20.9%, up 90 basis points from '21 and exceeding the prepandemic margins by 170 basis points. As reported, earnings per share for the year were $16.82, up 12.7% from '21 and represented a rise of 35.5% from 2019. It's all evidence of the decisive and ongoing momentum that marked the year and the quarter. Now the operating groups. Let's start with C&I. Fourth quarter sales of million for the group were down $15.5 million versus last year, including $21.2 million in unfavorable currency and a 1.7% organic gain. Our Specialty Tools division was a clear positive with double-digit gains. Precision is becoming essential every day, and our toric products are putting us right in the middle of that rise. Our critical industries also showed strength, especially in North America, propelled by growth in natural resources, general and heavy duty, partially attenuated by lower military activity. Outside North America, it was a different story. SNA Europe was down and China was diminished. OI for C&I was $47.9 million, down $2.2 million primarily from the $2.3 million in unfavorable foreign currency. The group's operating margin was 14%. It was flat to last year, but still represented an advance of 120 basis points over the pre-pandemic level in 2019, and that was against 50 basis points of negative currency and acquisition dilution. The specialty torque business within C&I really is making significant strides. Torque is hot, and Snap-on is a widening array of new offerings to prominently participate in that trend. Products like our new series of digital torque checkers. It's from our Norbar engineering team. You might remember we acquired Norbar a few years ago. Our Norbar engineering team in England, more compact and easier to use, it helps technicians validate the accuracy of torque instruments close to the workplace, saving a lot of time. Our new checkers accommodate torque measurements from 5-inch pounds to 1,500 foot pounds and rent is from a quarter inch to 1-inch covering jobs from precision fasteners and a jet cockpit to a heavy-duty bolt on a giant oil rig, a wide range of applications. And it's compact steel how they easily mount in a variety -- this is compact steel housing easily mounts in a variety of convenient locations at the point of issuing or in the pathway of the workflow, like tool cribs, aviation hangars and manufacturing cells, making torque checking an easy exercise. With an accuracy of plus or minus 1%, our new checker increases process quality without work interruption, raises consistency in assembly activity and, with a streamlined documentation feature, greatly improves the management of fastening in any application. The initial launch was well received by any operation that relies on precision torque, and there are a lot of them. And as you can imagine, the new checker is right on track to be a Snap-on hit product with sales of $1 million in the first year. So it looks like it's a pretty strong product for us. C&I, mixed progress, challenged with headwinds, but it did have significant areas of improvement paving the way for future growth. Now on to the Tools Group. Quarterly sales of $542.7 million, up $37.9 million, including 9.5% in unfavorable currency and a 9.6% organic increase, gains in the U.S. operation and continued expansion in the international networks. And it was all led by big ticket items, tool storage and diagnostics both with double-digit gains. Operating earnings for the Tools Group were $116.1 million in the quarter, $5.6 million above 2021, and that included $4.5 million in unfavorable currency. The operating margin was 21.4%, 50 basis points below last year, but that was impacted by currency and by product mix, but it was still a result of considerable strength. Tools Group again represents the ongoing power and market leadership of our van network. It's written across the financials. And that positivity is clearly an boldly echoed in the voices of our franchisees. I can tell you, I was just at one of our annual kickoff. It's unmistakable that they're pumped enthusiastic and confidence. They know they are growing. And they firmly believe there's more to be had. And our franchisee health metrics confirm all of that to be true. The quantitative trajectory delays in that data supports every bit of the positivity -- of the positive attitude. And the franchisees expressed their excitement in more formal ways. During the quarter, we were recognized by the Franchise Business Review, which surveys franchisee satisfaction. And it's the latest ranking that publication, once again, latest annual ranking -- that publication once again listed Snap-on as a top 50 franchise, marking the 16th consecutive year we received that award. And internationally, Snap-on was ranked #1, #1 in Elite Franchisees Magazine's Top U.K. Franchises for 2023, finishing not only above the U.K.-only franchise systems, but also coming in ahead of the very popular global brand -- a number of very popular global brands. Now that type of recognition reflects, I think, fundamental strength of our brand business, and it would not have been achieved without a continuous stream of innovative new products. As part of that, Snap-on continues to lead the industry with great tool storage innovations designed to improve productivity and allow techs to personalize their workspace. We're the first to market with the LED power top, rightly lighting the greening Snap-on tools like special jewels as each store is accessed. It's quite a sight. It enables the techs to show the pride in their work. And building on that feature, in December, we started shipping the first of our new IRIS tool storage units. It's a 68-inch special edition epic roll cap, which allows the technician to adjust the draw lighting with an infinite array of color selections. It is an eye-catcher coated and great paint paired with red trim, and it also features -- besides its appearance, it also features for the first time a specially lit Snap-on logo nameplate. It's innovative, striking. And as for all epic boxes, all of them, it streams functionality. The power top and the power door provides 10 electrical outlets and 4 USB ports throughout the road that ensures that all the cordless tools, the lights, the accessories are charged and at the ready. It also features our unique speed drawer for smart customizable tool organization. It's a very popular and productive feature in the shops. Convenience, productivity and distinction, the IRIS received an overwhelming reception, helping to drive the landmark tool storage we had just in the fourth quarter -- landmark full storage quarter we had just recently. It shows that pride really is a powerful salesman. You show that every day. Well, that's our Tools Group, booming in the U.S. progressing internationally, continuing the stream of new products, building the brand, enhancing the brand channel and moving forward with momentum. Now for RS&I. In the fourth quarter, our RS&I Group results confirmed what we've been saying all along. Snap-on is well positioned for the ongoing rise in vehicle repair. RS&I sales in the quarter of $437.9 million increased 11.6%, including $9.5 million in unfavorable currency and a 14.3% organic gain, 14.3%, boom shakalaka. That rise was authored by -- it was a great performance, and that rise was authored by double-digit increase in OEM dealerships as manufacturers continue to release new models, invest in new equipment and implement essential tool programs. But our business in the independent garages also expanded nicely with double-digit growth in our undercar equipment and in our diagnostics and repair information products, twin pillars of strength. Shop owners need upgrades to follow the changing car park, and they now have confidence regarding their futures to act on that imperative and Snap-on is ready to help. RS&I operating earnings for the quarter were $110.6 million, up 13.8%. And again, and the operating margin, it was 25.3%, rising 50 basis points over 2021, exhibiting our team's ability to navigate the turbulence, welding Snap-on value creation, connecting with customers, launching innovation executing RCI and doing what they're expected to do

Nicholas Pinchuk:

Thanks, Aldo. Well, that's our quarter and our year. I would say we can characterize particularly the fourth quarter as a period where the hits just kept on coming

Luke Junk:

I apologize if any of this has been covered in the prepared remarks, joining the call a little bit late this morning. First question...

Luke Junk:

That's helpful summary. I'll dive margin-related question to start with. And what I'm wondering is, now we've got several commodities, including steel that are off of their highs that we saw in 2022, and can you just help us understand how that might start to flow into your P&L this year, especially in the Tools Group? I know that typically, there's at least a couple quarter time lag that's associated with that? Is that still a good way to think about it? And at the same time, still broader inflationary pressures out there. If you could also comment on your approach to pricing as we begin 2023.

Luke Junk:

My follow-up question is around credit. So if you look at credit performance, I mean, it's been very good if we look at delinquency rates in the back half of the year versus normal seasonality that's in the context of what's becoming clearly more -- just more macro risk, generally speaking, originations trending higher. How do you balance credit in 2023 between managing the risk side and pushing on what does seem like it could still be an incremental growth driver for the Tools Group given where we're coming from?

Operator:

And our next question will come from Elizabeth Suzuki with Bank of America.

Nicholas Pinchuk:

Yes, really I mean, I think as we serve the dealerships just as well. I mean, you could argue that older cars have more repairs and maybe be entitled to that. But in reality, it's a long wave of event, Liz. The fact that new cars are becoming -- the fact that used cars were being held longer, we don't really think that makes that much a difference. We followed it for years. And when you look at a year or a quarter when, let's say, scrappage is up or scrappage is down, it doesn't seem to affect the numbers at all. So for us, I think if you said, okay, the car park is going to get younger over time, then that would be some pressure on repair. But the car park has gotten older every year since 1980. So I don't think that's going to change very much. And we -- I would not put the shift to used cars as much of a factor in the strength of the automotive repair market from our perspective. So I think any change from that is not going to make a difference, really. And we do serve the dealers. We actually get -- our revenues in the Tools Group is about the dealership -- revenue from the dealerships in the Tools Group actually almost dead on reflects the amount of repair that they have as a percentage of the total repair done in the country. So we're kind of agnostic between dealerships and independent repair shops.

Nicholas Pinchuk:

Well, look, I think we have a pipeline. We have a number of prospects we always look at, but we have -- what we do is we look to say we have runways for growth, enhance the van channel, expand with repair shop owners and managers, extend the critical industries and build in emerging markets. And we're always looking for something that's operating in the critical task space, where the penalties for failure are high, in other words, not DIY, but professional space. That can advance our position along one of those runways. There isn't much in the Tools Group because the Tools Group is already in a strong position there and it doesn't need too much. But if you look at -- and in emerging markets -- maybe in emerging markets now that's going to start opening up with all the turbulence that's been floating around there. But our 2 sweet spots in this have been in expand repair shop owners and managers, that's a junk RS&I or extend the critical industry. And when we look there is give us a product that gives us more to sell to those customers or a new technology that's important to the customers or gives us a presence with customers. So for example, I mentioned Norbar. Norbar is an acquisition, which got us bigger in torque. It's critical. It's a technology we could use some help in at the top end. So we acquired it and it was a great success story. You can see the same kind of thing in RS&I with the acquisitions of Dealer-FX, where we wanted to beef up our software position in dealerships, one, because it's a profitable situation; but two, because it gives you a strategic advantage in terms of the visibility of new products that are going to enter the market just as you talked about, the new products, you get a better view of it. So that's the kind of thing. So things that will advance us down those runways for growth are things we have money for, and we have no shyness about acquiring things. big or small. But we're careful. We take care of our money. So we don't transform the company. We're looking for coherent acquisitions. And there are a bunch of those. But sometimes when we look at something that isn't -- it's only 30% what we do or sometimes it isn't what we thought -- where we thought it was and we decided we don't want to have it, other times we do. In case of Norbar, Dealer-FX, we thought positively.

Unidentified Analyst:

And Nick, you talked about the big ticket items really driving the show for the Tools Group, but how did the hand tools perform in the quarter?

Unidentified Analyst:

Got it. And then just last question. What's the relationship of sell-in versus sell-through of the event?

Operator:

And our next question will come from David McGregor with Longbow Research.

Nicholas Pinchuk:

Gee, [indiscernible] special.

Nicholas Pinchuk:

I'm -- I like our inventory because we have a lot of faith in the future, but I'll let -- Aldo has got to answer a question. I'll let him say something here. Aldo, why don't you say something?

David MacGregor:

I can appreciate that you need that inventory to support the sales activity, but it continues to grow. And I guess the question is, at some point, do you have enough? And at what point if any, is there an opportunity to harvest that cash? Or is this kind of a structural step-up?

David MacGregor:

Good. Let me ask you about growth, and you mentioned the improving supply channels. How much of the growth in each segment would you estimate is driven by shipping from backlog orders rather than new orders?

David MacGregor:

Last question. Okay. Yes. Nick, last question for me. Just the 10-Q is not out yet, so, Aldo, maybe if you could just give us the finance receivable charge-offs. And then just how were overwrites this quarter?

David MacGregor:

Right. You provisioned pretty aggressively back in 2020, which was to your credit, but you've been working that down with charge-offs exceeding provisions for 8 of the 9 last quarters. So kind of getting back now to prepandemic level.

Operator:

Our next question will come from Bret Jordan with Jefferies. .

Nicholas Pinchuk:

It's the weaker economics. The U.K. has got a whole bunch of problems, the revolving door prime ministers and so on and that kind of thing. And it tends to be more organized around the Northern parts of that business. I think driven in the fourth quarter pretty much by a lot of banks that was in Europe in the fourth quarter over the fuel situation, and that weighed heavily on the people. And I think the whole idea that the recession is coming, the recession is coming there has kind of hit them. You got China who is like -- it's chaos in China. I mean, those guys went from being 6 weeks in their apartments to all of a sudden, let everything go, come to work with COVID. And 3/4 Quite population, some people say, got COVID. So I think things kind of went stand still because of the lockdowns in various cities and standstill because everybody is getting it. So that thing has been afflicted. So I'm not sure how quickly it comes back. So you have that. The other international markets like other parts of Asia, like Southeast Asia seen pretty good in that situation. So I think it's just COVID in Asia, particularly China, and the general sort of combination of recession is coming, fuel angst in England, reemergence of now we're out of COVID, the Brexit problems reemerge and the whole idea of the war is there kind of cast a pall over Europe. Although lately, I just heard some data that said that GDP is going to grow in Europe higher than other places, I don't know. I'm from Missouri on that one. I think Europe is a little weaker than maybe has been reflected in that. . That's what -- and then one other thing you do see is that we have -- I think I said this before, we have a strong demand in the critical industries. If we could source a little better, if we didn't have the varying disruptions of what's in supply, we could -- we would have been much stronger in this quarter and in past quarters. So one of the things that drives both the maybe some of the -- cast an overhang on the sales and put some -- hang on the margins because of you have to pay for the spot buys and it will always come in. And that's really in the critical industries where if you don't realize, there is our custom kits with maybe 200 or 300 items in them, and they must be shipped complete. So if you don't have 1 or 2 of them, we can't ship.

Nicholas Pinchuk:

The growth outlook is pretty good. the subscriptions are going up. I mean, they're going up through the roof. But the thing is, remember that you probably -- you may or may not realize this, but that the other -- the former version, and still we do some of this is, we would sell what we call not subscriptions, but titles. So every 6 months, we come out with a new software addition, and technicians could buy it for their diagnostic unit or not. And we're transitioning from that sort of every 6 months or every year pop to, okay, pay me every month. And so there's some balance in that. But software is growing in the situation, and we can see we can see some positivity in that regard. And so that's one of the things that is starting to help out software in the -- help out the RS&I margins. In fact, I think we want to make sure we focus more on that going forward. So I think that's one of our great opportunities. We see a lot of opportunity in things like dealership software and independent repair shop software. And the Mitchell 1 business, which we didn't mention in this, is still growing like clockwork. It's growing nicely and its profitability is strong. It's just not up in the double-digit range, but the subscription business is growing nicely.

Ivan Feinseth:

Congratulations again on another great year and a great quarter.

Ivan Feinseth:

So just 2 questions. One, as far as new product development, where do you see going with -- as car onboard ADAS systems continue to grow of increasing diagnostic and calibration capabilities inside, let's say, Apollo and Zeus. And then also the CEO of General Motors has said many times she envisions $50 billion in revenue coming from software and subscriptions, especially as cars become increasingly -- have increasing software-defined functionality. And though the dealerships will have to kind of become an increasing part of that equation. So how do you see that benefiting dealer...

Ivan Feinseth:

I believe software sales is going to be an increasing opportunity for you, so I'm excited for it.

Ivan Feinseth:

Congratulations again.

Operator:

And this will conclude our question-and-answer session. I'd like to turn the conference back over to Sara Verbsky for any closing remarks. .

Operator:

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.

Operator:

Hello, and welcome to the Snap-on Incorporated Third Quarter 2022 Results Conference Call. My name is Caroline, and I will be your coordinator for today's event. Please note, this call is being recorded. For the duration of the call, your lines will be on listen-only mode. However, you will have an opportunity to ask for questions at the end of the call. [Operator Instructions] I will now hand over the call to your host, Sara Verbsky, to begin the conference. Thank you.

Nick Pinchuk:

Thanks, Sara. Good morning, everybody. As usual, I’ll start the call by covering the highlights of the third quarter. I’ll give you an update on the environment and the trends we see. I'll take you through some of the turbulence we've encountered, thinking about our performance. Aldo will provide a more detailed [Technical Difficulty] The story of the Snap-on -- apparently we have some cross talk we’re hearing here. But the story of the Snap-on quarter is momentum overcoming challenges. Momentum rooted in the resilience of our market, the capability of our great team and the tactical and strategic advantage in our product, our brand and our models, all coming together to create considerable and ongoing strength. In effect, the third quarter once again demonstrated our ability to continue a trajectory of positive results despite the headwinds, and the numbers, they say it so. Our reported sales in the quarter of $1.125 billion were up $64.8 million or 6.2% versus last year, including $39.1 million of unfavorable foreign currency. Organic sales grew 10.4%, with gains in every group, our ninth straight quarter of year-over-year expansion. And if you compare it to the pre-pandemic levels of 2029 -- 2019, you see a clear and unmistakable upward drive, versus 2019 sales we're up 3% as reported and 2.8% organically, continuing our positive trend and accelerating our expansion, demonstrating that we're only getting stronger every day. I did say momentum. Quarter also bears the mark of Snap-on value creation processes, safety, a lot of the customer connection, innovation and rapid continuous improvement or RCI. Once again, they all combine to offer significant progress. And progress to what, Opco operating income of $223.5 million increased $22.2 million from last year, and the Opco operating margin was 20.3%, up 90 basis points from last year and rising 170 basis points over 2019. For financial services, operating income of $66.4 million compared to the $70.6 million of last year, a decrease reflecting the forecasted return to more usual provision levels. And that result, combined with Opco for a consolidated margin of 24.4%, up 20 basis points from last year and 120 basis point improvement from 2019. The quarterly EPS, it was $4.14, rising 16% over the $3.57 from a year ago and 39.9% over the $2.96 days recorded in 2019, a significant gain. I said it before, and I'll say it again. We believe Snap-on is stronger now than when we entered this great withering, and the third quarter results are an unmistakable confirmation of that fact. Well, those are the numbers. Now let's speak about the markets. Auto repair continues to remain strong. The key metrics are all favorable, spending on vehicle maintenance repair, the vehicle technician and technician wage is up, up and up again. And so wonder, it's no wonder the repair industry is resilient. Repair spending is rising. The cars are more complex. They need more repairs, and it costs more. The technician count is at its highest point in three decades, and shop owners keep telling me they need more, many more. Wages continue to grow, and they simply reflect the increased demand for the skills that are now necessary to complete critical repair tasks. It's never been more evident that repairing a modern vehicle with the new technology is difficult. It's an exercise of extraordinary skill. And the salaries are rising to show it. Auto repair is resilient. When I meet up with the people at the shop, as I often do, our franchisees and our technician customers, you can feel their exception in the now and their confidence in the future. And they're making sure they can participate in that future by being ready with the tools they need. Vehicle repair, it's a space filled with opportunity. You can hear it in the optimism in the voices of the shop, and you can see it clearly confirmed in Snap-on's performance. But it's not just the text, shop owners are also a big -- shop owners and managers are also big players in the horizon repair. And our Repair Systems and Information group are RS&I is positioned to take advantage. Everybody knows that cars are scarce. New and used. But for Snap-on, that doesn't matter. Repair and collision shops are busy. It's a tool we like very much. And it's evident in the rising sales of our undercar equipment and collision businesses, both strong. You have a repair shop today, you see a bright future with changing technologies, and you want to be ready, new vehicles are being released with a greater variety of drivetrains than ever from internal combustion engines to hybrid to plug-in electric to full electric. And the range of options is growing

Nick Pinchuk:

Thanks, Aldo. Well, it was quite a quarter. A staggering number of media pieces have exhaustively documented the modern-day hydro turbulence that marks this period. So we all know the challenges are many, and they're substantial. But despite the headwinds, Snap-on stayed on the train, and that momentum shines through in the quarter across all our groups, all of them. C&I, growing 7.9% organically, extending its position in the critical with robust gains in North America and Asia Pacific, overcoming the variations in Europe, registering an OI margin of 14.7%, the strongest since the supply chain disruptions began in earnest, demonstrating continuing progress. The Tools Group. We believe the franchise network is stronger and more capable than ever. Sales up 7.4% organically. OI margins 20.6%, down 20 points, but against 40 basis points of unfavorable currency and representing a rise of 680 basis points above 2019. RS&I aggressively expanding with repair shop owners and managers, growing organically 17.2% over last year and 27.2% over the pre-virus era. And the OI margin was a strong 23%, and it all ends up to ongoing and ongoing upward trend for the corporation. Activity rising 10.4% organically versus last year and up 22.8%, compared with 2019. OI margin for the corporation was 20.2%, up 90 basis points from last year and 170 basis points above the pre-pandemic level. And one final testimony you know, straight. The EPS was $4.14, a significant gain of 16% versus 2021 and 39.9% over 2019. It was an encouraging quarter, and we are convinced it's an extremely promising future. You see, we believe that the resilience of our markets, co-authored by critical tasks and changing technologies will drive opportunity against the win. We believe that our strength in customer connection and innovative products and in the special power of our brand, will position Snap-on to fully participate in those possibilities. We believe that the considerable capability of our experienced team can navigate to any turbulence, and we believe that these are unique advantages that will maintain our substantial momentum, breaking barrier after barrier, reaching new highs through the remainder of this year on into 2023 and well beyond. Before I turn the call over to the operator, I'll speak directly to our franchisees and associates. As always, I know many of you are listening in. The encouraging performance, we detailed here today, was made possible only by your individual and your efforts and your collective actions for your extraordinary success in authoring another strong Snap-on quarter, you have my congratulations. For the unique skills and capabilities you're display and overcoming the challenges of these days, you have my aberration, and for your unwavering confidence in our future and your continuing commitment to our team, you have my thanks. Now I'll turn the call over to the operator. Operator?

Operator:

Yes. Sure. So we will take the first question from line of Gary from Barrington. The line is open now. Please go ahead.

Aldo Pagliari:

It was $0.09, Gary.

Gary Prestopino:

Okay. Thank you. And then Nick, you mentioned that there was some pretty good robust order flow out of the conference that you had this year. Can you maybe give us a quantifiable range of what that was year-over-year? And then where was there really particular interest in the part of the franchisees and specific Tool Groups? Was it storage, diagnostic, just general households, whatever.

Gary Prestopino:

Okay. And then you're kind of breaking up there, but I think--

Gary Prestopino:

Okay. And then just one last one, if I may. In terms of diagnostics, your diagnostic tools at this point, fairly drive train agnostic, or do you actually have a specialized diagnostic product that is just systemic to electric vehicles.

Gary Prestopino:

Okay. Thank you.

Gary Prestopino:

Thank you so much.

Operator:

Thank you. We will take the next question from line of Bret Jordan from Jefferies. The line is open now, please go ahead.

Nick Pinchuk:

Good morning.

Nick Pinchuk:

Well, there's a couple of things. I mean one of the things we're getting better at applying social media. So, the idea behind social media, it's a big RCI opportunity because of the better we can pre-brief the customers. So, when we enter the shops, the customer kind of knows the product, he knows the -- and we have a lot of promotions. So, he knows the promotion. So, the franchisee can spend his limited time with that particular individual, customizing why those characteristics mean a lot to them, and he can use them. And so that is really one huge thing. It's one of the things that we're getting better at day-by-day, but it has driven some of our capabilities in those kinds of situations. There's other things in terms of collections, in terms of taking inventories on the vans in terms of adjusting the computer system. So, it's easier to use and quicker those kinds of things in ways in which they can status their orders, which is a big deal these days because you've got a lot of people clamoring for product, and they're looking for it. So those are the kinds of things.

Aldo Pagliari:

Bret, good question. We actually saw exceptionally strong performance in 2020, 2021. You read about it from other people as well that people service their debt in a more aggressive fashion, bringing it down and people were more current than ever in servicing debt. So we had unusually low provisions in 2021 and in 2020, in the back half of 2020. What you see now is kind of a return to a more normal pace. And even in the quarter, based on comparing it to 2017, 2018, 2019, the rate of provision is still less than that era. So in the quarter, they're performing well. I mean, it's a very typical performance that we're seeing. And all the leading indicators still give rise to the fact that we think we'll do okay in the credit company.

Operator:

Thank you. We will take the next question from the line of Scott Stember from MKM Partners. The line is open now, please go ahead.

Nick Pinchuk:

Yeah. In each quarter, it varies from time to time, but this quarter was sort of right on, pretty much the same. Maybe even, yeah, I'd say, right on, maybe even a little better, but not -- for government work, you can say, sell-in and sell-out was about the same.

Nick Pinchuk:

Actually, everything is sell-in for undercar. It's one of the things that derive -- the collision repair is a star in this era. I think it's driven by the idea that collision, the cars now has that neural network of sensors. So every time -- if you just dent bumper, it's thousands of dollars of repair, because you've got to recalibrate everything and so on. So collision shops got to upgrade to take advantage of that to be actually be able to effectively, not only restore shape but put things back into operating performance. But also, the other businesses we're selling via the other products like lifts, just basic lifts, which you would think would be the most vanilla of products in the situation are selling quite well. So I think it's on collisions shops, as the situation, but also repair shops in general are seeing the future, and they are pumped about this. Like I said, I think even the dealerships are starting to get over the idea, they don't have cars to sell and are turning to repair.

Nick Pinchuk:

Well, first of all, I have to say, though, I think when you walk in the garage, you don't hear a recession. It's like when you watch the -- when you watch the programs like Score Box [ph] in the morning, every 10 words are recession -- every 10th word is for recession. You don't hear that in the factories of the -- among the people of work. You just don't hear it. They're really robust about this. But -- if you're talking about canary in the coal mine, if you looked at the last -- each one is different. But certainly, the last ordinary recession that wasn't open. You would see a reduction maybe in bigger ticket items perhaps, because of the confidence in the future. Generally, repair needs to go on. It's essentially doing it, but people might be packing to shorter payback items and longer payback items when they're a little more uncertain about the future. That happens in the financial recession. Now as it turns out in the quarter, our big ticket items were robust.

Operator:

Thank you. We will take the next question from line of Luke Junk from Baird. The line is open now. Please go ahead.

Nick Pinchuk:

Well, look, I don't think, and I now have been -- I've been through two big downturns; one, the financial recession, and two, the COVID, if you can call it. And I don't remember restricting our investment in the business. I do not remember that. If we wanted to do it, if we thought it was important for the future, if these was efficacious for our customers, we were able to do it. Because Snap-on, maybe you get a little -- you're off the bubble a little bit, but we've never really been restricted in a recession. And those are two big ones, two big wins. And so I don't anticipate doing that. I anticipate our ability to keep investing in the business. We might tighten our belt in terms of travel and things, other things people do. But if you're talking about investing in a business, we said last time, we kept going, we kept investing in product and brand and people. We didn't lay anybody off. And that's what we did. And that's why we came out of the reception stronger. So we do the same thing.

Nick Pinchuk:

I think we certainly -- let me take the Tools Group first. I think there's -- and Tools Group, I said many times, we control the customer interface. We believe we can price for visible inflation. We were pretty satisfied, we were pretty encouraged by this quarter. Third quarter -- I've said this like in 15 third quarters that I've been on this call, it's always squarely. So the idea is -- I thought the Tools Group had a great -- a very encouraging third quarter, especially against the currency, and being up over 2019. If you come to C&I, yes, it's a little bit more viscous in terms of pricing. But if you look at C&I, I think we thought 7.9% up organically. It's pretty good. It's starting to break out of the problem and the 14.7% OI margin, while down year-over-year is the highest since we actually started getting this turbulence. So we see -- when we step back on it, we see C&I fighting against these turbulences, both geographically and sector-wise. But we see them winning the war and moving forward, and we would consider that to happen. If you look at cost overall, generally, there's a lot of variation in this, but steel cost -- for example, some steel costs are down now. So you're going to start seeing that versus last year. Others are down versus the peak, but not down versus last year. So you're going to see variation going forward, but it's got to be an easing of the situation, at least a more positive situation. The worry about C&I is the ability of getting things and getting them delivered when you have those hundred tool -- 100-unit complex kits to deliver, and you have to have them all in place before you send out the kit. And so that can be devil C&I. That's the major battle for them. But I feel pretty confident about the situation. I think things are getting better.

Aldo Pagliari:

I would just say at the highest level -- look, I'd say a way to look back that. When the world broke into the era of COVID, there was a lot of trepidation as to what does that mean. And looking backwards, you probably have a period, including Snap-on, where we over reserved and the provisions were probably higher than that was necessary. And as a result of that, when you actually see the proof as it played out, that you didn't require those, you had been a need for lower provisions in 2021. And now you're starting to get back to what I call a more normal pace of activity. And if you look at the portfolio itself, it's got a little bit better credit characteristics. What I mean by that is maybe $1 of conservatism on the part of who we granted credit to, so it's less high-risk candidates in the pool. And people's FICA scores have improved marginally. So again, at a macro 30,000-foot level, there's probably a slightly less amount of credit risk in the portfolio. And therefore, as you go forward in these trends, I think it's kind of getting back to norm for lack of a better word, with that macro backdrop that Nick just described.

Operator:

Thank you. We will take the last question from David MacGregor. The line is open now. Please go ahead.

Nick Pinchuk:

Yes, I can hear you.

Nick Pinchuk:

Hi. How are you doing?

Nick Pinchuk:

Yes, we are doing okay.

Nick Pinchuk:

That's not – but okay. Go ahead.

Nick Pinchuk:

No. I -- we don't think -- we think pricing ends up being around -- we do a list price, but the list prices don't all flow, and then we've got the -- it doesn't all hold. And then we've got the promotions, which go out and some of them are leaner and some of them are more rich. And so you have that. And then you've got new products that are rolling through the system and they get repriced. So when we look -- we all said and done, we would say that tools may be getting half of that in price or maybe a little bit less. That's the way we see it. It doesn't -- you can't really just look at the list price because it gets so complicated in looking at that. But our best guess is that it's around that number. So okay, you see -- okay. Yes, it's not 7.4% volume growth, but it's certainly not zero.

Nick Pinchuk:

Maybe.

Nick Pinchuk:

David, yes, that's cool, but that's not true. The thing is that remember, you got pricing also rolling through those things year-over-year, the same way you did that calculation on the overall number, you got some of that. But tool storage was strong. But you've got other small ticket items. You've got power tools, you got, what we call shop-in tech, which is a myriad of other things that we might sell like lights and pressure gauges and things like that. And so you have a lot of things that go to that. But if you want to pinpoint on hand tools, I'll tell you hand tools is good in the quarter, up double-digits again. So, generally, the core products were okay. The things that are normal. That's what happened in that situation.

Nick Pinchuk:

No. No, no. Go ahead. Go ahead. I'm trying to answer your question. Go ahead.

Nick Pinchuk:

We always think about these things, David. We review it all the time. But in reality, we've kind of held there, and it's worked for us for a long time. And so I think we are -- we think it's appropriate for the credit profile of the people we deal with. And so we haven't changed anything in that macro in a long time. So, when you look back and you look at the performance of the credit company, it really isn't marked by major changes in the core model. It's generally been the same. Now, it isn't that we don't review it or anything, but I don't think we're seeing ourselves do that right now anyway.

Nick Pinchuk:

Sure. Okay.

Sara Verbsky:

And that was our final question. Thank you all for joining us today. A replay of this call will be available shortly on snapon.com. As always, we appreciate your interest in Snap-On. Good day.

Operator:

Good day. And welcome to the Snap-on Incorporated 2022 Second Quarter Results Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Sara Verbsky, Vice President, Investor Relations. Please go ahead, ma’am.

Nick Pinchuk:

Thanks, Sara. Good morning, everybody. As usual, I will start the call by covering the highlights of our second quarter. Along the way, I will give you my perspective on our results, once again they are encouraging. And our market, the robust, resilient and promising and I will talk about our progress. We believe we are now stronger than ever and we will also speak about what it all means and we believe it means that we are better positioned for more, a lot more. Then Aldo will go into a more detailed review of the financials. All you have to do is follow the news and you know that we live today in the midst of turmoil, inflation, variants supply, continuing unpredictable outbreak, precipitous lockdowns and a war in the Ukraine and Snap-on has shown through it all, wielding our advantages in product and brand, and in people, progressing down our runways for growth, engaging our Snap-on value creation, driving improvement, making the most of our resilient markets and extending our positive trajectory, piercing the turbulence. The story of our second quarter is simply one of rising momentum. We have been meeting the challenges quarter after quarter and we are simply getting even better at overcoming the difficulties, and going forward, we are confident of our capabilities continue to advance and here are the numbers that say we should be confident. Our reported sales in the quarter were $1 billion, $136.6 million, up versus last year by $55.2 million or 5.1%, including $32.4 million or 330 basis points of unfavorable foreign exchange. Organic sales growth was 8.4% with gains in every Group. And compared to the pre-pandemic levels of 2019, our upward drive is clear as a bell versus 2019 Sales in the quarter rose 19.5% as reported and 18.7% organically. This is now eight straight quarters of being above pre-pandemic levels. We believe we are continuing an ongoing trend of accelerating expansion and are building momentum with emphasis, increasing higher and higher, demonstrating that we are only getting stronger every day. The Opco operating income of $246.6 million, was up $29.5 million and the operating margin, it was 21.7%, up 160 basis points from last year and 170 basis points from 2019. For financial services operating income of $65.3 million, compared to the $68.9 million of last year and that result combined with Opco for a consolidated operating margin of 25.5%, up 100 basis points from last year and 130 from 2019. And EPS was $4.27, up 13.6% from last year and 32.6% above the comparable pre-pandemic level recorded in 2019, up $3.22. I have been saying this since the third quarter of 2020, I will say it again, we believe is Snap-on the stronger now than when we entered this great withering and the second quarter numbers say it so. Now let’s talk about the markets. Auto repair remains positive. Most if, not all -- most, if not all of our key indicators are quite favorable spending on vehicle maintenance and spending on vehicle maintenance and repair, up, number of techs, up, mechanic wages, up. The techs are optimistic about their prospects and about the greater need for the skills as new technologies, new complexities advanced across the car park and we saw a confirmation of in that broadly held believe, for several quarters now is a number of automotive repair technicians continue expanding upward period-after-period, higher now than any of the last three decades. And when I speak with shop owners or managers, as I often do, it’s clear that there is a need for more, many more and that Snap-on we love it. Vehicle repair is a strong and resilient market, a feeling that’s also reinforced by our franchisees. You can see it in our numbers. You can hear it in their voices. We believe they are more prosperous than ever. Besides franchisees and technicians, there’s vehicle repair shop owners and managers, this is RS&I arena. Demand for new and used cars is high, but supplies are limited, it’s a well known Story. The pandemic has impacted the auto supply chain, sure. But it doesn’t matter. Lots of new cars or scarcity of new vehicles, the car park is large, ageing, getting more complex and demand for repair remains strong, come back to high water and the shops are seeing this clearly and starting to invest to meet the currently need and get ready for the future. The variety of drivetrains is expanding, internal combustion, hybrid, plug-in electric, full electric and every day there’s more driver assistance and more vehicle automation, increasing vehicle complexity. Shops now have a greater need for new and upgraded equipment and they are becoming more and more rely on service and repair information to guide them through the galaxy of new requirements and procedures, it’s all music to our ears actually. Snap-on makes great tools and equipment and it’s clearly repair and information headquarters. RS&I has taken advantage of that trend, creating new equipment offered and advanced database solutions. We now have a strong array of products in that vital areas. Mitchell 1 repair information software and shop management software, SPX, electronic parts catalog, our dealer shop management technologies, electric vehicle health check solutions and our heavy-duty and fast track intelligent diagnostics hardware. These are big databases and getting more powerful and easier to use, helping the shop to fix it right the first time and efficiently. The repair shop is changing, rising in complexity and ours -- and I has the products to match it. Finally, let’s talk about critical industries. At Snap-on, we say Snap-on rolls out of the garage solving tasks of consequence and we do. This is C&I territory, our most international operation and it’s where we see the most continuing impact of the pandemic and it’s in children like supply chain inflation and supply chain disruption and inflation, where customers have been slower to accommodate, where headwinds are still persisting and where our multi-SKU product offerings are particularly impacted by supply chain challenges. I suppose everybody knows about the two-month lockdown in Shanghai, that area is a significant C&I business center and it’s also key transportation hub for our China factory, so the lockdown was an obstacle. And beyond that focused event, C&I is particularly challenged by its considerable geographic reach, adjusting with the varying impacts and protocols and economic turbulence from countries with a varying virus impacts and protocols and the economic turbulence from country-to-country. But I would say, if you look at the quarter, the C&I team rose to the occasion, and in the quarter, we won gains in North America, in Europe and in Asia, despite the difficulties. So I’d describe our C&I markets as representing continuing opportunity and coupled with automotive repair, we believe our overall markets are robust right now and there is considerably more opportunity ahead as we move along our runways for growth. And I can leave this section about robust progress in abundant possibilities without once again speaking of our -- of the engine of our advanced Snap-on value creation, particularly in customer connection and innovation, developing new products and solution born of the observation gathered right in the workplace, insights that create great new offerings, and at the same time, help guide the expansion of our franchisee selling capacity with better processes, more effective training and more powerful communication, all of that helped drive our progress, overcoming the difficulties, accommodating the virus, taking full advantage of the market opportunities, starting a continuing positive trend moving forward and we are going to keep it going. Well, that’s the overview now, let’s move to the segments. In the C&I Group, sales in the quarter were up 2.5% as reported or 8.6 million versus 2021 and that includes $25.3 million or 6 point -- 7 point, that includes a $25.3 million or 7.6% organic gain driven by progress across all our divisions. From an earnings perspective, C&I income was 51.7%, a decrease of $3.8 million compared to 2021, $2 million of that was unfavorable foreign currency and the rest represents the impact of supply chain turbulence on the multi-SKU C&I products. The OI margin was 14.4%, down 140 basis points from 2021, but did represent progress and then it’s a 100 basis -- 100 point sequential improvement from the last quarter, when compared with the pre-pandemic 2019 periods, sales were up 7.4% organically and the OI margin of 14.4% was down 20 basis points, but that included an 80-point impact from acquisitions and unfavorable currency. Now continuing bright spot in C&I this quarter and again this quarter was SNA Europe, it did deliver yet another quarter growth, expanding double-digit year-over-year and well beyond pre-pandemic levels, all against the wins in Europe with innovative solutions of our Bahco Erle tool management system leading the way, tailoring product specific to customer needs. Europe is a varied market and SNA Europe is making increasing gains by matching the products to the specific tasks. And that positive SNA Europe was joined in C&I, quite valuable contribution from recovering areas in critical industries like aerospace, in general industry and from countries, in Asia-Pacific, like, India, Japan and South Korea. All combines overcome the decline and slower to recover sectors like the military and natural resources. We do remain confident and committed to extending in critical industries and that commitment is confirmed with great new products. Speaking of product, last quarter to help solve crucial tasks across both critical industries and automotive repair, we strengthened our 14.4 Volt MicroLithium power tool lineup with the new Snap-on CT761 3/8-inch Impact Wrench. It’s a very attractive, but it’s also quite functional. Featuring a compact design to reach tight spaces, a nylon-based housing for rugged durability and a special toggle switch trigger for precise control. The new unit also includes a try being headlight for broad illumination entire work area and now that’s a feature that makes complex multi-point jobs much easier in the low-light conditions that often occur in the workshop or enrolled repair. You can imagine it. The Impact Wrench also delivers a robust 225 foot pounds of breakaway torque and it’s controlled by a variable speed drive. So the operator can apply just the right torque for each job and the 14 volt battery with its 2.5 amp hours ensure it’s consistent output and an extended run time which makes for a lot more efficient workday. The CT361 began shipping early in the quarter and it was right on target, quickly becoming a million hit product and it’s sold out and what seem like a blink of an eye. Great product. Well, that’s C&I, a promising quarter, volume up nicely, starting to overcome the turbulence, moving down it’s runways for growth. Now for the Tools Group, sales of $520.6 million, up $36.5 million, including $7.7 million of unfavorable currency and a 9.3% organic gains and the operating margin 23.9%, up 250 basis points compared with pre-virus 2019 sales grew $114.8 million, including a 28% -- 28.1% organic gain and this quarter is 23.9% operating margin was up 630 basis points compared with those pre-virus numbers, coming out of the pandemic stronger indeed. Another positive quarter for the Tools Group with growth across all product lines and beyond as we see further indications of continuing strength. Other data like the franchisee health metrics, which we monitor every quarter, they remain quite favorable and on a clearly positive trend. We do believe our van network remains quite strong and it’s not just the numbers. Just a few weeks ago, I spent time with a couple of dozen franchisees representing the regions on our U.S. and Canadian national franchisee advisory councils, and they were motivated and prosperous, enthusiastic about the current performance, positive about the trajectories of the other vans and various areas that they represent and very optimistic about the prospects for even more going forward. They believe in their opportunities and they are confident about their future. The Tools Group, strong quantitatively and qualitatively and that positivity was not just internal. Once again this quarter, it was reinforced by the external view. Snap-on was recognized again this year among the top 50 in the franchise industry by Entrepreneur Magazine. And once again in that ranking, we rated in the top of the Tools Distribution category, a place we have for some time and this type of recognition reflects fundamental, contemporary strength of our franchisees and of our overall mobile van network. It is a powerhouse business and that momentum would not have been achieved without a continuous stream of unique new products. And one of those that helped drive our hand tools up again this quarter, again this quarter was our new Long Nose Slip Joint Pliers. It’s a special tool with our patented 3-Position joint precisely machine for effortless switch -- for effortless switching and control, allowing the pliers to -- it allows the pliers to keep the jaws parallel increasing the contact with the work piece, with its indicated -- it’s got a relocated joint, optimized handle shape and unique Talon Grip-serrated jaws. With all of that our new pliers provide over 50% more pulling power. The machined and hardened teeth are sharp and strong and present three different gripping geometries, from heavy serrations at the base to fine grooves at the tip, great variability for multiple applications. You can apply different parts of the jaw. They are manufactured right here in our Milwaukee factory and they are manufactured from special cold forged allied steel for greater durability and strength. These players were launched at the beginning of the past quarter and they have been very well received. When I talk to the franchisees of the NFAC, they said are flying off the truck, and they are right. The sales have already made a hit product strategy just in one quarter. Our new offerings are in fact making a difference in the Tools Group, you can’t miss it in the numbers, eight straight quarters above pre-pandemic levels. The Tools Group is moving onward and upward with eye-catching momentum and if you look at the numbers or spend any time with the team, you believe it’s all systems go and it is. Now on to RS&I, sales were up 4.6% or $18.2 million versus last year, including $27.4 million or 7% organic uplift with double-digit growth in undercar equipment with diagnostics and information advancing and with the dealership activity flat from an earnings perspective RS&I operating income of $95.7 million, represents a rise of $9 million or 10.4% and the operating margin was 23%, up 120 basis points in the last year. Compared with 2019, sales were up 19.5% as reported and the organic growth was $58 million or 16.8% with strong advances in undercar equipment and diagnostics and information products. For profitability, the OI margin of 23% was down 240 basis points versus 2019, pretty much reflecting 110 point impact just from acquisitions and the effect of the margin dilutions from the higher sales of undercar equipment that we have been seeing. We believe RS&I has great opportunities and we are fortifying its way forward with new products like our Hofmann 609 aligner, specifically designed for independent or general repair shops, where alignment is -- it’s not currently a primary focus and the space is short. The new offering allows those all-purpose garage to keep the low volume alignment business in-house with its compact footprint and portability kit enabling easy storage when not in use and efficient deployment when alignment is actually need. It saves a lot of space, but it gets the job done. With our latest 3D system authoring OEM approved accuracy, the 609 enables the handling of even the most complex alignment systems by those general repair shops. It generates a high return on the investment, doesn’t occupy space needed for other repairs -- often needed for other repairs and it fortifies the garage’s reputation for technical capability. It’s a great value for the general repair shops and they are noticing. Our equipment business has been on a roll with strong double-digit equipment growth for double-digit quarters for some time and the Hofmann 609 aligner is a big player in that mix. RS&I, approving its position with repair shop owners and managers, growth in undercar equipment and diagnostics and information projects, products and an array of innovative new products and product lines to lead the way. Well, those are the highlights of our quarter, Tools Group, strong progress everywhere, unmistakable strength. C&I, recording a positive performance against the variation across industries and geographies and RS&I, expanding profitable volume with repair shop owners and managers. Snap-on overall sales rising markedly, both versus last year up 8.4% organically and up 18.7% organically compared with pre-pandemic levels continuing clear positive trajectory. Opco operating margin are strong 21.7%, rising again in this quarter rising again this quarter, up 160 basis points. EPS $4.27, up versus last year, up versus last quarter and up versus pre-pandemic levels. It was an encouraging quarter. Now I will turn the call over to Aldo. Aldo?

Nick Pinchuk:

Thanks, Aldo. Well, that’s our second quarter. Markets that are resilient and getting more robust by the day. These are interesting times in the pandemic, inflation, supply interruptions, a war, and pop-up lockdowns, but Snap-on brings to this turbulence considerable advantage in product, in brand and in people. It’s enabled our team to cut through the turbulence, continuing a positive trajectory and you can see it in the performance. C&I on a growth path again, with a 7.6% organic increase, despite being our most impacted business. RS&I, gains with repair shop owners and managers, driven by hardware and its expanding information portfolio, sales up 7% organically and NOI margin of 22%, up 120 basis points from last year. And the Tools Group, gangbusters results, sales up 9.3% organically versus last year and up 28.1% versus 2019, eight straight quarters above pre-pandemic levels and NOI margin of 23.9%. And it all came together for overall Snap-on organic growth of 8.4%, NOI margin of 21.7% and an EPS of $4.27, all high watermarks despite the turbulence. It was an encouraging quarter and we emerge from that period with rising momentum. It is a turbulent time, but Snap-on is driven by attractive markets, by unique strengths and by an experienced and capable team that’s achieved clear and consistent performance and period-by-period has become stronger and stronger in navigating the issues of the day. And we believe these inherent advantages will continue to prevail as we go forward on a clear an upward trajectory through the remainder of this year and well beyond. Before I turn the call over to the, Operator, I will speak directly to our franchisees and associates. I know they listen in. The corporation is an organization where people come together to create a benefit for themselves and others that they could not alter individually. You have done just that again this quarter. For your success in that endeavor you have my congratulations. For the energy and the skill you bring to our efforts, you have my admiration and for the commitment you unfailingly demonstrate to our team, you have my thanks. Now I will turn the call over to the operator. Operator?

Scott Stember:

Good morning and congrats on the very strong results.

Scott Stember:

Can we talk about Tools? You mentioned that, everything was up, and it sounded like Tool storage had another very strong quarter. Was that related to the new mobile cart and maybe just try to size up how big tools storage was in the quarter and trying to figure out...

Scott Stember:

And then…

Scott Stember:

Go ahead. I am sorry.

Scott Stember:

I was going to ask about the selling to the van and off of the van the inventory situation right now on the van?

Scott Stember:

Got it. And then lastly in RS&I, you talked about undercar doing really well. Is that related to the collision part of the business or is that just across the board?

Scott Stember:

Got it. Thanks for taking my questions.

Operator:

We can now take our next question from Luke Junk of Baird. Please go ahead.

Nick Pinchuk:

Last quarter, I don’t think had any impact on this quarter. But it was mostly in the last quarter where you saw, it might have had some impact on originations, because last quarter you -- from a sales point of view, there was a skewing towards the back end of the quarter, because the breach was in the early parts of the quarter, so you saw that going out. And as I said, last time we thought we had pretty robust sales in some of the big ticket items, but they hadn’t made their way through the vans yet necessarily and that probably worked out this quarter. I think the big driver though, Luke, is the product. I think the optimism of the technicians and the product itself. I think, what does drive originations is the view of people saying, wow. I really like these EPIQ boxes I got and we had a more available now. We are getting better at delivering them. During the pandemic we had some fits and starts, so we are pushing a little more carts and now we have a little bit more of the basic roll cabs. So I think that’s what drove the higher originations in this time. We still see pretty good RA, the finance by the franchisees seemed pretty solid. That wasn’t down in the course. So that was pretty strong. As I said, hand tools were up. So I think it’s pretty much product driven. What you see in the Tools Group, I mean, the Tools Group is on a pretty big momentum. If you look back over the pre-pandemic levels, they were up 9%, and what was that, Q4 2020 then 15%, then17%, then 21%, then 22%, then 24% and 28% this quarter. And by the way, they came through the quarter, they exited the quarter stronger. They are on the mail train. They have got momentum rolling. And so I feel pretty good about that and that’s playing out in some of the now broader product lines in Tool Storage. We did, as I said in the last call, that doesn’t mean that carts were down any, they were still strong in the quarter just that the low cash got bigger.

Nick Pinchuk:

Well, I think, look, I think, higher software margins are, you are going to see it, one of the things you are seeing in our -- remember we said, we are pivoting away from titles where we sold updates, we call it titles, but they are basically updates on software every six months, we are pivoting to a subscription business. So that tends to stretch out your revenue was a little bit -- it effects revenues in the quarter. And so, but our subscriptions are up deep, our subscribers are up deep double digits in this quarter year-over-year. So that seems to be working for us. So we are pretty pumped about the possibilities in that, but you know you have some, I guess, I would say, recognition questions as you go through this period. So you don’t quite see it coming through, but I can see it coming through in the future. And as I said, with the array of electronic products we have around software, from the diagnostic software to the Mitchell 1 software, to Dealer-FX to electronic parts catalogs to vehicle checks. We feel we are repair, information headquarters and it’s going to become bigger and we are going to see it roll through that business earlier. Now if you ask me to expect to see the equipment business attenuate, I hope not. I am not hoping for it, just because it’s low margin, it doesn’t seem, it doesn’t mean I don’t want the profits, I do. So and I could see that go, that was down -- you might remember, it was down, it was pretty much flat on its back for a couple of quarters, couple of three quarters earlier and it’s bouncing back from that. We have seen a lot in independent repair shops and I would figure after the dealerships start to get used to the situation, I think, they will discombobulated by the low supply and what are they doing associated with this sort of a little bit -- little more reluctant in situation. When they come online, I think, that will be even greater.

Nick Pinchuk:

Yeah.

Aldo Pagliari:

Thanks for the question, Luke. Actually it has a little affect if anything it might create a more favorable environment. And why do I say that? Again, we fund long. So if you look at Snap-On’s balance sheet, we don’t fund day-to-day. So the rising interest rates do not have a foreseeable immediate impact on our borrowing capability, because as you could see there’s plenty of cash on the balance sheet and there is nothing that’s coming due for quite some time. So we are stable in terms of the cost of our funds going into that business. Our stated rates have been pretty consistent really for decade plus. So and they are not the lowest rate out there, but they are lower than what might be available to people that are on a credit card format and things of that nature. So we think our rates are appropriate for the credit profile of the customers that we serve, we think that they -- those types of customers recognize that. So we are the kind of the lender of choice if they do decide to engage in any type of lending activity. And I think because we provide that stability, it gives a little bit a form of reassurance, so as interest rates go up competitors rates, if they were ever considering them, and when I say competitors, I am thinking of things like credit cards. So as interest rates are going to be going up for people that are in the subprime category. So we are going to be pretty stable and our approach is going to be pretty consistent. Yeah, I think the competitions rates might be going up, which you could argue maybe creates a slightly more favorable environment.

Operator:

We can now take our next question from Bret Jordan of Jefferies. Please go ahead.

Nick Pinchuk:

Good morning.

Nick Pinchuk:

Go ahead. Go ahead. Ask the follow-up one.

Nick Pinchuk:

And by the way, just, Bret, before the Tools Group will execute -- Tools Group guys will execute be if I leave this conference call, not saying that it also have inflationary impacts on it and price is going up. So it’s not just RS&I and C&I. They also have to deal with that and I got to give them credit for that. But look, here is the thing, it’s hard for us to determine, because we know we have some pricing, but it isn’t the majority of it. Looking at our factories, we know we have products in demand. There is rolling off there and our guys are up to their eyeballs in demand. So we know that’s a positive situation. The other thing is it’s hard, because you know we have list prices. But the list prices don’t -- are very from product to product and they come out on an average, you might say your raising sales 3.5% or something like that but products. And then overlaying on top of that we have a lot of new tools, we keep roll in new tool. In fact, million dollar tools we have dozens a quarter rolling out and then, across the network. And then we have promotions that occur week to week and they can be lean or rich and taken up the big effect. So it’s hard for us to say. I would say the minority of the increases in pricing and the majority is in volume for us. We think that’s the situation in this situation in our environment. Now, that varies from Group to Group and so on. Now if you talk about where we are getting the biggest impact, our biggest inflationary impact, Bret, is trying to buy on the spot market, because we have said we want to deliver the best we can. We have demand. We want to deliver. We are not keeping up with all the demand, but so we are buying like chips on the spot market. And I can go -- that can fluctuate wildly. We buy components for power tools and other things on a spot market, that can move wildly. If you look at commodities, I would say, look, we buy several, many grades of steel, but if you look at steel for tool storage and steel for, let’s say, lifts, hot rolled and cold rolled, there both coming off a little bit. They are getting a little better. They are coming down. If you look at steel for hand tools, it’s at its top and now they are still not back to the steady state levels but they backed off a little bit. The steel for hand tools, which we call rod steel, that’s pretty much reached the top level and it’s flattened out but it hasn’t abated for us yet and we are not seeing too much abatements in freight, you see those kinds of things flowing through. I would expect this stuff, as I believe that as the COVID turbulent start the micro viscosity start -- stop happening, you are going to see the stuff start to drift downwards, because you are not going to have the interruptions in supply and therefore it’s going to get more regular and therefore the prices are going to come down. But I don’t have a crystal ball on that. That’s sort of our view of the situation.

Nick Pinchuk:

It’s hard for me to say because it changes. It’s all over the map depending on where you are. In the Tools Group, you have a list price and the other places, you are pricing product-by-product and it depends on the size of the product and a lot of different things. So, all I am saying is, I think, if you wanted to step back and you look at our pricing, it’s the minority of our growth.

Nick Pinchuk:

Hopefully get share, get volume out of it, Bret. Okay.

Christopher Glynn:

Hey. Thanks. Good morning.

Christopher Glynn:

So, Nick, some -- hey. Some pretty strong comments on the momentum and the tenure across the Tools Group. I did want to drill down into that in terms of, we -- the relative contributions of market penetration and overall kind of advancing into technicians not traditionally served versus a revenue per technician type of equation.

Christopher Glynn:

Okay.

Christopher Glynn:

That makes sense. Yeah. It was kind of meant to particularly drill into the expanding the technical...

Christopher Glynn:

That’s great. And then on C&I, clearly a stronger quarter year-over-year and sequentially versus kind of the trends we have seen in the past few quarters, a little more kind of stable, steady. So wondering if your sense of things getting rolling there versus you kind of got a bit more out the door of this quarter?

Christopher Glynn:

Great. Thanks for the color.

Operator:

We can now take our next question from Gary Prestopino of Barrington Research. Please go ahead.

Nick Pinchuk:

Gary, how are you?

Nick Pinchuk:

I think you see more demand for the diagnostic, but you also see the hand tools. I think, if you look at the -- they are in the car park, but they are -- if you look at -- it’s one thing to look at it versus the sales. If you look at them in the car park, it gets to be pretty thin. You are not seeing -- not that many garages are seeing a lot of them. So the guys are talking to us about this and we sell hand tools and we sell some diagnostics that you have -- it’s not a special diagnostic form, but it’s a diagnostic that would have the capabilities to deal with those things. So you are not seeing -- they are still pretty thinly distributed across unless maybe you are in Southern California or something like that or maybe New York City or some, you might see some of those garages, but we are not seeing huge demand. Mostly we are getting ready for what we think will be the demand going forward. We think this is going to be a tidal wave. And so that’s one of the reasons why we acquired Dealer-FX to get a look at these things.

Nick Pinchuk:

Sure.

Ivan Feinseth:

Hi. Thank you for taking my questions. Congratulations on another great quarter and the great results.

Ivan Feinseth:

When you were talking about like you bring on a new tool and it sold out pretty quickly, how fast can you ramp up? Is it because you didn’t anticipate the demand would be so strong or you are seeing still dealing with shortages and how quickly can you ramp up for another production run?

Ivan Feinseth:

And then as your franchisees interact with OEM mechanics, what kind of feedback or discussions are they having about preparing to ramp up for new tools to handle the EVs that are at some point going to explain...

Ivan Feinseth:

Yeah.

Ivan Feinseth:

And then I assume you are going to need some kind of new types of lifts to handle the access or battery swapping because of the way is…