Q3 2020 Snap-On Inc Earnings Call
Good day and welcome to the snap on incorporated 2023rd quarter results Conference call. Today's conference is being recorded at this time I would like to turn the conference over to Sarah <unk> VP of Investor Relations. Please go ahead ma'am.
Thank you and good morning, everyone. Thank you for joining us today to review snap on third quarter results, which are detailed in our press release issued earlier this morning.
We have on the call today, Nick Pinchuk snap on Chief Executive Officer, and although probably Ari snap ons Chief Financial Officer.
Nick will kick off our call. This morning with his perspective on our performance.
Although will then provide a more detailed review of our financial results after.
After Nick provides some closing thoughts we'll take your questions.
As usual, we've provided slides to supplement our discussion.
The slides can be accessed under the downloads tab in the webcast viewer as well as on our website snap on dotcom under the investors section. These slides will be archived on our website along with a transcript of today's call any statements made during this call relative to management's expectations estimates or beliefs or otherwise.
Management's or the company's outlook plans or projections are forward looking statements and actual results may differ materially from those made in such statements additional information and the factors that could cause our results to differ material materially from those in the forward looking statements are contained in our SEC filings sign.
This presentation includes non-GAAP measures of financial performance, which are not meant to be considered in isolation or as a substitute for their GAAP counterparts additional information, including a reconciliation of non-GAAP measures is included in our earnings release and in our conference call slides on pages 14 through 16, both can be.
Found on our website with that said I'd now like to turn the call over to Nick Pinchuk Nick.
Thanks Sarah.
Good morning, everybody.
So ill start with the highlights of our third quarter I'll give you a perspective on how the virus environment, it's playing out on the trends that we see today and going forward.
I will speak on our physical and financial progress then I will provide a more detailed review of the financials.
We see the third quarter as another encouraging period.
Metrics, clearly confirmed snap ons resilient showing the ability to continue its trajectory of positive result, moving from the initial shock of the virus and the associated interruption of of activity to accommodation developing safe and effective ways to support the essential nature of our business and in some segments starting to look to.
Psychological recovery, where customers begin regaining confidence in the future and are resuming full buying participate.
The quarter's results back that all up demonstrating significant elements of advancements sales and profitability improved sequentially across our operations. Despite the virus. The snap on team continued to make progress by increasing our ability to accommodate to the threat and pursue our essential commercial opportunity.
Safely moving along upward trajectory is consistent with our general perspective on how the days of the virus are unfolding.
Geographically the impact of the cold and continues to be varied across our operating operation operating landscape Asia Pacific remains a virus challenged southeast Asian, India are still in deep turbulence.
And at the same time you're.
Europe, so some signs of recovery for business segments, certain areas education oil and gas aviation experience greater and more and more prolonged difficulties you might expect that.
In fact, the speed at which our customers are accommodating to the environment does vary by segment, leading the way upward our vehicle repair technicians supporting me a central mobility of our society and our direct selling vans, our franchisees, providing extraordinary face to face value. Both are taking full advantage of the opportunities and enough.
Sure.
And as we go forward, we see considerable additional opportunities.
Society pivots towards suburban locations into more individual transportation, okay. Its music to the use of the vehicle repair operation.
We believe we do have abundant opportunities on the road ahead and because of that we're keeping our focus on snap on value creation safety quality customer connection innovation and rapid continuous improvement the RCR and in this area that emphasis this era that emphasis is particularly important in a.
Customer connection innovation.
We're following that focus to create a continuing stream of great new products positioning our operation to monitor operations to monetize the accommodation and the psychological recovery that outlines a path for the future.
And in the third quarter.
Snap on value creation customer connection innovation drove growth in the face of the uncertainty and led to significant additions to our long line of products and innovation Awards.
Snap on was prominently represented with three Motor magazine Top two awards and we were further honored with five professional tool and equipment news or P. 10 Innovation awards, the most significant of law.
We're also recognize with 18 P. 10 People's Choice Awards, where the technicians. The actual users make the selections 18 is a big number it ties a record that was set just a few years ago.
In a central driver, our girls with or without the pandemic is innovative product that makes work easier it's always been our strength and the warts hard one.
Our testimony that exceptional snap on products, just keep coming matching the growing complexity of the tasks and maintaining our forward progress.
Even in turbulent.
Well that's the overview.
Now for the results third quarter as reported sales.
941.6 million were up 39.8 million or 4.4% from 2019, including a 34.
Point, Sixmillion or a 3.8% organic increase 4.2 million a favorable foreign currency translation and 1 million a back acquisition related related sales.
[noise] marriage perspective.
Opco wide for the quarter of a 185.7 million, including 1.5 million a direct costs associated with the virus and a 4.5 million dollar hit from unfavorable currency compared to 167.7 million last year.
Yep go operating margin.
It was 19.7%.
Top 110 basis points.
For financial services operating income of 65.6 million increase from 2000 961 million all while the 60 day delinquencies improved year over year over year and that results combined with Opco for Q4 consolidated operating margin of 24.5% 130 basis point improvement.
The overall E T S was $3.28 and that.
And that compared to $2 or 96 cents last year, an increase of 10.8% in a somewhat challenged environment.
Those are the overall numbers now the groups.
You know volume in the third quarter was 308.4 million, including 2.2 million a favorable foreign currency was down 8% as reported 8.6% organically.
I think the decreases in we're talking decrease in sales to our customers in critical industries I named a few and in Asia Pacific now our European based cancel business was essentially flat to last year. A positive result, given the twin headwinds Opole, Poland 19, and the economic turbulence that noun habits that region.
From an earnings perspective see an operating income of 43.1 million decreased 5.2 million, including 1.4 million of unfavorable foreign currency effects and 810th of cold related expenses now seeing nice sales were down 8.6%.
Oh I was down 10.8%.
Reasonable ratio highlighting that our C. On cost containment went a long way in offsetting the impact of lower volume and seasonality and it is.
In addition to the group did show significant sequential progress the decline in sales in Hawaii, both narrowed considerably compared to the second quarter reaffirming the positive upward trend that started after rate.
Regarding critical industries military and International Aviation again continued to register growth while activity in education oil and gas in U.S. aviation were particularly impacted that.
As you might expect that given the state of those particular industries, but we.
But we do remain confident in and committed to extending the critical industries and we see growing opportunities moving forward and the principal pass it up possibilities customer connection and innovation.
Combining.
To create powerful new products.
Our European hand tools business showed resilience in the quarter, yes, and it was aided by dose of innovation products like a whole new line of biological and insulated cutting holding players. We've read we redefined the steel mill and refined our heat treat process development to be developing a new metallurgy that strikes the perfect balance between strength in real.
Liability with a special material advantages, the edges, where redesign and improve progressive blades and cookbook soft cables at the tip and hard wires close to the joint tremendous for stability versatility.
The new players have longer jaws and are aligned with more precision better access and more accurate work. The installation meets the eye you see a six zero 900 international standard for working with life systems up to 1500 volt DC.
Substantial protection safety in the vehicle and vehicle repair Warren industrial environment.
Strength reliability flexibility accessibility and safety digital player.
Our full addition to the buckle lineup of insulated tools now numbering 250 strong all focus on electrical work.
The new players will launch just this quarter and I'll tell you the recession was a it was quite enthusiastic.
We also continue to introduce attractive new entries in her a lineup of 14.4 for the the compact cordless power tools. This quarter two strong additions effective in the repair shop around the production line, the new CDR resi 61, or the CG, our Ari 61 incline right angle grinder, hi towards longer runtime.
Extended motor like all in a compact lightweight and easy to move her body.
The new units both feature or do they both feature a dual college system accommodating both eight inch and quarter inch bits, allowing for a wide range of accessories and a feature that when combined with our build to spend a lot makes for very quick changeover. That's.
That's a popular timesaver.
The new tools also includes variable speed control the t. to handling a wide variety of servicing jobs. We launched in August the technicians clearly have noticed and the drivers are already already two or a million dollar hit products.
Cnine.
Demonstrating encouraging sequential progress serving me essentially each of the businesses generate ongoing improvement in exiting the quarter stronger than when they entered and product investments wanted a big piece of that progress.
Now onto the tools.
As reported sales up 16.8% to 449.8 million, including 1.8 million favorable foreign currency, and a 62.8 million or 16.7%, 16.2% organic increased same store sales with the U.S. and international businesses all grow.
Looking at double digits.
Yeah, operating earning 87.1 million, including 0.4 up $400000 of virus related cost and 2.9 million of unfavorable foreign currency that compared to 53 million last year.
The tools group operating says success was a clear confirmation on our view of the cold in 19 trajectory on the resilience of the vehicle repair business and on the strength of our direct face to face ban model.
As we entered the quarter, we saw a franchisee seeking increasingly effect wish accommodate dependent for doing this pursuing there's the support of the essential and we've helped in that effort with Timesaving AIDS, including further automation and cost in the customer collection process remote diagnostic software renewals and multi franchisee database.
Bundling.
New technology age aimed at making it easier to operate in the virus environment and saving scarce franchisee time under any condition.
Also as I'm sure.
Many of you are aware the third quarter is when we when we hold our annual snap on franchisee conference. The SFC no surprise. This year it was different than any held before the interest in gathering was cancelled in 100 day anniversary celebration plan for that meeting was postponed to.
2021.
The usual events, we came together over the weekend ordinarily reserve for the assets. So you had a virtual conference a lot from the porch more than 3800 van drivers participated at a distance representing nearly 98% of the North American network.
Following what was I think a rousing Friday night kick off we had presentations on significant offerings training and unique product advantages and seminars on effective selling techniques. After that Friday show hundred 80 individual vision videos featuring products and programs and training were posted on demand and through the course of the weekend.
Franchisees racked up over 43000 views of the content.
The lives from the floor just action was concluded on Sunday afternoon.
I'll tell you it was a clear success.
Continuing the SFC tradition, highlighting new products strengthening our franchising capabilities with great training and reinforcing our brand with a positive message in a lot of fun.
It was abundantly evident evident had life and affords that new product is a big driver for franchisee excitement, we do have considerable confidence in the power of a product line and a real reasons for that belief you heard about the product awards well beyond that as our franchisees saw there's a continuing stream of other great new offerings candidates for next year's recognize.
[laughter] attention getters that make repair work easier and really helps the technicians meet the challenges of increasing vehicle complexity at the model years roll by just one example.
Unveiled at the conference was or was our new steel tighten roll cab with a new color combination I catching dark titanium paint brush didn't blue trim special details in bright blue the snap on nameplate, yes, wrench logo located on the kids space and especially a syringe imprint on each into your line but.
The Titans visually striking I can tell you, but it's also work, enabling three extra wide yours for easy access to most commonly used tool to speed your improved organization for a variety of small items like drillbit <unk> power drawer for power tool charging you for public school judges using an exclusive power strip the snap on a snap on tools or power.
[laughter] design with five will upset he I'll listen to you must be ports.
Vehicle repair.
Is moving towards psychological recovery.
Gaining confidence starting to invest in longer payback guidance and the steel tightened its just the ticket. It's it's product excitement even in the pandemic and it wasn't says that customers love it.
Also introducing this quarter or was it was the new eighties power steering and alternator pulley Master said, a handler you, helping technicians to more easily remove uninstalled pressed on pulleys, and most GM Ford and Chrysler engines unique reversible dual design. That's just a handful has includes multiple adaptors, allowing for quick model chain.
Changeovers and income and increased productivity pretty important to correct. The master settlement isn't necessity for smooth installation and removal of power steering pump alternator and Bakken pump police in a large range of vehicles. It man, it's manufactured era El Monte Alabama plant right here in the U.S.A. I was just there last week and I can tell you. It's a great team, it's still wonder the.
Initial response to the Master set was very positive it made our list up hit million dollar products in just the first month.
Well, that's the tools group accommodating the pandemic, taking advantage of the psychological recovery furthering innovation and strengthening for the future now lets speak of arsenide. The arsenide group also posted significant sequential improvement from the second quarter narrowing the shortfall to 1.6% you may begin.
All that in the second quarter, the sales were down 29.8%.
That's a big mover.
Volume in this period was volume in this period and that in the third quarter was 317.5 million, including 800000 of a favorable favorable foreign currency in a million from recent acquisitions. The slightly lower activity reflected continued growth in sales of diagnostics and repair information products to independent repair shops and flat capital.
Ending on Undercar equipment, all balanced by improved.
Still decreased activity in vehicle OEM projects.
Our son I operating earnings of 80.1 million decreased 3.2 million, reflecting the lower volume well why margin was 25.2% down 60 basis points, including a 10 point hit from currency.
So while the overall group was somewhat impacted diagnostics and information based operations continue to grow and once again new products led the way among the new offerings launched in the quarter was our our latest intelligence diagnostic unit the Apollo denying ergonomically designed the new handheld it's a new handheld and it features ultra fast to second startup time, a larger now.
Nine inch touch screen and a number a preload in training videos installed directly on the tool for instant use.
The platform powered by our intelligent diagnostic software over 1 billion repair records and over 100 billion unique diagnostic events organized to help technicians fix cars much faster.
Now we've been talking about shortening the selling cycle for our complex diagnostics and increasing the sales capacity of our franchisee franchisee will lie from the forge features that detailed seminar on operating and selling the new Apollo and to make that distance training extra powerful each franchisee.
Was it was provided with a new demo unit to follow right a long life hands on with the program. In addition to the special training do you Wanna could also be used immediately the next week to demonstrate the new apollo's compelling advantages right in the field.
Seems to be working.
It's although it was introduced at the end of the quarter. Our on the Street feedback says our new handheld will go a long way to advance our our strategic thrust into intelligent diagnostics.
We're confident in the strength of arsenide, and we keep driving to expand its position with repair shop owners and managers, making work easier with great new products, even in the days of the virus.
Well that our third quarter.
Absorbing a shock following the accommodation moving onto a psychological recovery keeping our people safe, while we serve the essential continuing to improve sequentially on a positive trend a successful less that see at a distance confirming the power of our direct selling band model.
Result above last year sales of 4.4% Oi margin, 19.7% or 10 basis points higher financial services navigating the virus era with strength and an E. P. S a $3.28.
All achieved while maintaining and investing in our strength.
And our strengths of product brands and people.
It was an encouraging quarter now I'll turn the call over to al though although that's not our consolidated operating results are summarized on slide six net.
Net sales of $941.6 million in the quarter compared to about EUR $1.8 million last year, reflecting a 3.8% organic sales being $4.2 million of favorable foreign currency translation and $1 million of acquisition related sales [noise].
The organic increase reflected sequential improvements in year over year performance in all three operating segments led by the tools group segment with a double digit sales into the third quarter as compared to last year while sales.
While sales to the commercial industrial repair systems and information segments were lower than the third quarter of 2019, they did increase significantly from 2022nd quarter levels.
In the quarter. The COVID-19, pandemic remained a headwind to certain geographies and within certain industries, but overall the momentum experienced in the month of June continued into the full third quarter for all of our businesses.
Similar to last year, we identified last quarter, we identified $1.5 million of direct cost associated with coconut 18. These costs include direct labor under absorption associated with temporary factory closures wages for quarantines associates event cancellation fees as well as other costs to accommodate the current enhanced health and safety environment.
Consolidated gross margin of 49.9% compared to 49.7% last year.
20 basis point improvement, primarily reflects the higher sales volumes and benefits from Marci I. This is partially offset by 50 basis points of unfavorable foreign currency effects.
The operating expense margin of 30.2% improved 90 basis points from 31.1% last year, largely reflecting the impact of higher sales and savings from cost containment actions and accommodating the impact that COVID-19 has had on the overall business environment.
Operating earnings before financial services of $185.7 million, including $1.5 million of direct cost associated with COVID-19.
And $4.5 million of unfavorable foreign currency effects compared to $167.7 million in 29 gene, reflecting a 10.7% year over year improvement.
As a percentage of net sales operating margin before financial services of 19.7%, including 20 basis points of direct cost related to the COVID-19, pandemic and 60 basis points of unfavorable foreign currency effects improved 110 basis points from 18.6% last year.
Financial services revenue of $85.8 million in the third quarter of 2020 compared to $84.1 million last year, while operating earnings of $65.6 million compared to $61 million in 2019, principally reflecting growth of the financial services portfolio as well as lower provisions for credit losses.
Yes.
Consolidated operating earnings of $251.3 million, including $1.5 million of direct corporate related costs and $4.3 million of unfavorable foreign currency effects compared to $228.7 million last year.
As a percentage of revenues the operating earnings margin of 24.5% compared to 23.2% and 2019.
Our third quarter effective income tax rate of 23.4% compared to 23.5% last year.
Finally, net earnings of $179.7 million or $3 or 28 cents per diluted share increased $15.1 million or 32 cents per share 2019 levels, representing a 10.8% increase in diluted earnings per share now.
Now, let's turn to our segment results.
Turning to see United Group on slide seven.
Sales of $308.4 million compared to seven and $35.3 million last year, reflecting an 8.6% organic sales decline and $2.2 billion of favorable foreign currency translation.
Organic decrease primarily reflects a low teen decline in both sales to customers in critical industries and in our Asia Pacific operations, while sales of the segment's European based cancels business were essentially flat.
Across the critical industries games and international Aviation is in sales to the U.S. military were more than offset by declines in natural resources, including oil and gas as well as continued lower technical education sales.
In Asia sales to customers in India, and Southeast Asia continued to lag behind so recovery experience in other areas of the region.
Gross margin of 37.3% declined 60 basis points year over year, mostly due to the impact of lower volume and 50 basis points of unfavorable foreign currency effects.
These decreases were partially offset by material cost savings and benefits from the company's RCR initiatives yeah.
The operating expense margin of 23.3% improved 20 basis points as compared to last year operating earnings for this segment of 43.1 million, including 1.4 million of unfavorable foreign currency effects compared to $48.3 million last year.
The operating margin of 14% compared to 14.4% a year ago.
Turning now to slide eight.
Sales in the snap on tools group of $449.8 million compared to $385.2 million in 2019 [noise] reflect.
Reflecting a 16.2% organic sales gain and a $1.8 million of favorable foreign currency translation.
The organic sales increase reflects a mid teen gain in our us franchise operations and approximately a 20% increase in the segments International operations.
Gross margin of 45.5% in the quarter improved 210 basis points, primarily due to the higher sales volumes and benefits from Marci I initiatives, partially offset by 70 basis points of unfavorable foreign currency effects.
The operating expense margin of 26.1% improved from 29.6% last year, primarily due to the impact of higher sales volumes and savings from cost containment actions, including lower travel and meeting related expenses.
Operating earnings for the snap on tools group of $87.1 million, including $2.9 million of unfavorable foreign currency effects compared to $53 million last year.
The operating margin of 19.4% compared to 13.8% a year ago.
Turning to yours, and I group shown on slide nine.
Sales of $317.5 million compared to $322.7 million, a year ago, reflecting a 2.2% organic sales decline as well as $800000 of favorable foreign currency translation and $1 billion of acquisition related sales.
Your organic decrease includes a high single digit decline in sales to OEM dealerships, partially offset by a low single digit increase in sales of diagnostic and repair information products to independent repair shop owners and managers.
Gross margin of 47.3%, including 10 basis points of unfavorable foreign currency effects declined 40 basis points from last year.
Operating expense margin of 22.1% increased 20 basis points from 21.9% last year.
Operating earnings for the Arsenide group of $80.1 million compared to $83.3 million last year, the operating margin of 25.2% compared to 25.8% a year ago, including the effects of 20 basis points of unfavorable currency and 10 basis points of direct cost associated with COVID-19 now.
Now turning to slide 10.
Revenue from financial services of $85.8 million compared to $84.1 million last year.
Financial services operating earnings of 65.6 million compared to 61 billion 2019.
Financial services expenses of $20.2 million decrease $2.9 million from last year's levels, primarily due to lower provisions for credit losses, reflecting a year over year decline in net charge offs.
As a percentage of the average portfolio financial service expenses were nine tenths of 1% and 1.1% and the third quarters of 2020 and 2019, respectively.
In the third quarter, the average yield on finance receivables of 17.8% and 2020 compared to 17.7% in 2019 the respective ever.
The respective average yield on contract receivables was 8.4% and 9.2%.
The lower yield on contract receivables in 2020 includes the impact of lower interest business operation support loads for our franchisees.
These loans were offered during the second quarter to help accommodate franchisee operations and dealing with the COVID-19 environment.
As of the end of the third quarter approximately $16 billion of these business operating support loans remain outstanding.
Total loan originations of $252.8 million in the third quarter of 2020 compared to $253.5 million last year.
Originations of both finance receivables and contract receivables were essentially flat to last year's levels.
Moving to slide 11.
Our quarter end balance sheet includes approximately $2.2 billion of gross financing receivables, including 1.9 billion from our us operation.
Our worldwide gross financial services portfolio increased $25 million in the third quarter.
Lessons of finance receivables in the quarter of $185.2 million compared to collections of $181.6 million during the third quarter of 2019 as you.
As we mentioned last quarter as a result of the COVID-19 pandemic. We did provide short term payment really for forbearance to some of our franchisees qualifying customers.
As of the end of September those accounts, having forbearance firms, we're back to more typical levels and were below 1% of the finance receivable portfolio as compared to about 2.5% as of the end of the second quarter.
Trailing 12 month net losses on extended credit, where finance receivables of $46.7 million, representing a 2.7% of outstandings at quarter end down 23 basis points sequentially.
The 60 day, plus delinquency rate of 1.5% for us expense credit compared to 1.7% last year.
On a sequential basis Threed is up 50 basis points, mostly reflecting the typical seasonal increase of 20 to 30 basis points, we experience between the second and third quarters as well as the 20 to 30 basis point benefit to this rate reflected in the second quarter of 2020 that was associated with the deferred payment programs that were offered through June.
Now turning to slide 12.
Cash provided by operating activities of $224 million in the quarter increased $92.9 million from comparable 2019 levels, primarily reflecting the higher net earnings and net changes in operating assets and liabilities, including a $57 million decrease in working capital largely driven by lower.
Our year over year changes in inventories net.
Net cash used by investing activities of $18.8 million included net additions to finance receivables of $11.7 million and capital expenditures of 10.1 billion.
Net cash used by financing activities of $105.1 million, including cash dividends of $58.8 million and the repurchase of 300000 shares of common stock for $45.1 billion under our existing share repurchase programs.
As of the end of September we had remaining availability to repurchase up to an additional $294.5 million of common stock under existing authorizations turning to.
Turning to slide 13.
[noise] trade and other accounts receivable decreased $75.7 million from 2019, you're at the.
Days sales outstanding of 64 days compared to 67 days at 2019 year end inventories increased $4 million from 29 senior Oh.
Trailing 12 month basis inventory turns of 2.4, although slightly improved as compared to 2.3 times at the end of the second quarter compared to 2.6 at year end 2019.
Our quarter end cash position of $787.5 million compared to $184.5 million at year end 2019.
Net debt to capital ratio of 15.5% compared to 22.1% the year end 2019.
In addition to cash and expected cash flow from operations, we have more than $800 million in available credit facilities.
As of quarter end, there were no amounts outstanding under the credit facility and there were no commercial paper borrowings outstanding.
That concludes my remarks on our third quarter performance I'll now turn the call back to Nick for his closing thoughts Nick Thanks outlook.
We are encouraged by the quarter.
Our operations all the groups Cnine arsenide and tools improving sequentially.
Shock to accommodations, a psychological recovery tracing a clear and continuing upward trend a significant rise in the tools group up 16.2% organically same store sales confirming the opportunities in vehicle repair and showing the power of our van network.
Financial services performing well in the turbulent demonstrating clearly the robust nature of its processes and its portfolio and the.
And the positive overall results sales up 4.4%, 3.8% organically Hawaiian margin, 19.7% strong.
Representing a rise of 110 basis points as.
S $3.28 up 10.8% from last year significant gains against the turbulence.
All achieved while consciously continuing to fortify our strength in advantage in product a range of new offerings in brand a successful SSC. Despite the distance and in people, we're keeping our team intact.
You see.
We are confident in our belief that we have ongoing upward momentum in the near term and we recognize that we've expanded opportunity in changing technologies and with the greater use of personal vehicles in the long term and we're maintaining our advantages through the virus. So that snap on will be at full strength, taking advantage of these abundant opportunities.
Driving continuous progress through this through this period of challenge.
And well beyond.
Now speak directly to our franchisees and associates.
I know many of you are listening.
This was an encouraging quarter and we do have a bright future and I know none of it will be possible without your energy your capability in your dedication.
For your essential effort in supporting our society.
Have my admiration.
For your extraordinary achievement in driving US forward you have my congratulations and for.
And for your continuing commitment to our team.
You have my thanks.
Now I'll turn the call over to the operator operator.
Thank you if you would like.
Like to ask your question. Please signal by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment again.
Hey, Good press Star one to ask a question well pause for just a moment to allow everyone an opportunity to signal for questions.
Well take our first question from Christopher Glynn with Oppenheimer.
Good morning, congratulations on a strong quarter.
So.
Yes, it the tools group.
Hi to contextualize the.
Growth, which you know really had no foreshadow were precedent the last few years other than maybe it was a wiser to look at two Q3 Q combined.
Over your growth or you know in terms of.
I would.
Look I think I think the thing is I think we said when we went into the first quarter and the first quarter. We said, we got hammered in March but things are looking pretty good before that so I think we have made investments in product and and processes that were helping us.
Mine, the franchisees capability more effectively and we started to see that towards the end of the fourth quarter last year in the first quarter and.
And then you know you know.
Katy bar the door on the virus and so things go down, but we started to see people. We cover. So that's why we say shock accommodation. They started to accommodate and we said June was coming back tracing an upward trend. So when you look at the third quarter. I think you think of it in okay. There is done as you know some make up you know.
I assume when things are going down so badly, particularly in April there's some there's some catch up their boss.
Here's the thing that makes sense to us when you look at the sales off the bat.
The sales off the van have been strong for a long time.
They were better in the second quarter than ourselves and in the third quarter. They were every bit as strong deep.
Deep into you know clear, we well into double digits every month and then when you look back at it after the third quarter. The sales off the van are up year over year.
You know by a clear amount and so their player but by by clear amount. So I think that's the data point. It says to me were going back to kind of like that that upward trend now what happens going forward hard to say.
I guess, that's the $64000 question, you know, but I like what I see.
You know in this kind of situation.
Sorta tosco seems to be hitting on all cylinders.
Wow part could be Europe, and in the quarter one of the cool things about the quarter was UK it turned around quite.
Quite well you know I don't know if you caught the international operations up double digits and that hadn't been a situation and so there's a lot of ups and downs there that could be on certainty going forward over those geographies and so on but I'll tell you a lot there's a lot of momentum.
A lot of good we see a lot of good reasons for this in the franchise is becoming more effective in the way we knew how to get over this because of the Oh. This wasn't our first rodeo associated with the with the downward trends and we knew how to get our franchisee so and we got us through it and it paid off.
So I think I think you kind of look at it. Okay, you know, 16.2% organically than [laughter], it's a big number but.
Well, we really mind, the profits and and I think if you will if you think about off the van that shows that there was an appetite out there and vehicle repair is back it's approaching its approaching cycle and what we call in our in our contacts and our construct psychological recovery and the man's are taken advantage of it what we like about this.
Is regardless of the arithmetic.
It shows the resiliency of vehicle repair in turbulence and and the positivity in the strength of the face to face ban model when we enable it with these technologies we've been helping it help.
Helping them.
Thanks, Joe.
Just a follow up I was curious.
Degree you guys contemplate a shift in the payout ratio given that organic reinvestment in bolt ons in share repurchase or you know very much covered and you're kind of pay as you go rates. There I think you know some feel there is a strong case for 50% to 60% payout ratio curious your thoughts around that.
Well, Chris you probably know that we have in recent history, usually revisit the dividend rate in the fourth quarter, that's coming up upon us and like every meeting we have with the board of directors will have that discussion and we'll try to take a step forward and what we think is affordable realizing that snap as approaches that treat the dividend increase kind of like a purpose.
It would be because that's been our historic pattern I'll kind of leave it at that.
Yeah, I mean, our governor governing policy and dividends as perpetuity, we think it's a cornerstone and in a hallmark of the resilience and power of our model. So we believe in that strongly.
Thanks, guys.
Yeah.
Well take our next question from Luke you with Baird.
Everyone. Thanks for taking the question. So there are two questions on the tools group first wondering if you could comment on growth rates from a product line standpoint. It seems like diagnostic sales are likely up moderately based on your our snack commentary and two storage I guess, if we just look at origination Susan fairly stable.
Should we read that hand tool sales were the big driver of the strength or is there something else, we should be taken into account.
You know sort of yes with qualifications to those questions I guess I don't know look.
First of all looking at look I'll, just say this as a disclaimer upfront looking at the the quarterly byproduct numbers doesn't really tell you that much because it's heavily dependent on what.
Introduced what are the products and programs that break on the mind on the on the with the franchisees and then onto the technicians in the quarter that really heavily influences. So one quarter can't give you any real information on this but it can it's better to the public and I would just start sharp stick. When you look at these things sometimes you know so look here's the.
Thing Big ticket items.
We're up in the quarter our.
Our sales to the franchisees were up in the quarter and they were up Okay. You know that.
Total stores had a nice quarter actually and I bought the there is a there's a timing difference between between originations and sales are sales to the vans remember what you're seeing from US is we sell to the vans and then they got a probably first of all okay. They've got to get there you're going to get there and then the guys get them up and they feel.
Find a buyer and then they get credit and so on so there can be there can be some sort of this disconnection between the timing, but generally I'd say that's right. They were up in the quarter Handfuls was we're very strong in the quarter very strong and they led the way the power tools were nicely up too. So I mean that there was there were a number of different products.
That were up the handfuls of course, a lot a lot depends on what you what you what you feature and what the new products, which is why I talked about the the the the master set because handfuls is it was it was it was a star in the quarter, but it wasn't to the exclusion of say like tool storage and the others.
Okay. That's a good thing I think you would you would one of the things I think you would conclude out of this I think.
Is that when you see originations in effect, what are they down 8.3% or something like that or you know something maybe a little bit bigger than US you know and you see me say that tool storage is up to the franchisees.
The big ticket is up the franchisees you would.
I would say that it's not the most of the products it's that the.
It's that the fact that being flat.
Even flat or up a little bit year over year means that they're going to psychological recovery in other words, the garages and the franchise and the technicians and the franchisees themselves are starting to believe in the future and have confidence to invest in longer payback items. This is kind of a watershed event in terms of.
The state of mind throughout the industry one of the one of the SAP I tend to think about it point you just step back and you look at the news about the auto industry in general, but also you kind of look around you know the vehicle repair is pretty robust actually.
In in wages were.
Wages were up for technicians in August according to via the Rolling 12, Iraq. So I mean, I think that's that's a positive and when I go out when I went to the factory in Alabama and help mile. Bam I also want to franchisees I just talked to several franchises across the country and they're all talking about robust garage is.
When I went to a garage recently out around here you couldn't get into parking lot. There are too many cars.
Well I think this is going pretty well.
And then second question just a clarification wondering what the status is of the deferred payment sales plan programs that you told us about back in April was there any impact from those plans in the quarter from a from a sales standpoint, and the tools group and then from a credit standpoint, although you'd mentioned the sort of 22.
30 basis points influence sequentially in the U.S. extended credit delinquency rate should we assume that that fully washes out in the third quarter effectively versus the noise. If you want to call it into Q.
Thank you three there was no sales derived from the deferred programs because there weren't okafor program. So I can only say that our elite franchisees people that we strife in the platinum program called elite always have the privilege of being able to offer a 60 day deferred programs as a normal course of business.
So I would call that just normal activity. So there is nothing unique in Q2 in Q3 that benefited the sales line when it comes to impact on delinquency rates and collections in charge offs, we factor all of that and based on our history, which has considerable because again, while we don't have it in depth Cobiz 18.
Experience. This is our first experience at that we do have a lot of experience with catastrophic events, which are usually more local and we do provide and our provisioning for what will be the anticipated losses. When you have people that take advantage of deferred programs versus not deferred pearland. So having said all that I guess I don't want to use the word of washes out but it's all.
I'd kind of reflected in our results and going forward, whether we offer more deferred programs will remain to be seen you know we look at the opportunities in the third grade it will think about it and see if it creates a reason cut by now you know you know what's interesting from our perspective is if it weren't for the cold.
Everybody wouldn't be on the edge of their seat with this I I recognize that everybody wants to see if theres going to be problems with the with the credit company your own collections and delinquencies and so on because of the cold it.
But in reality the deferral is just an everyday thing for US we do from time to time, it's it happens on a on a regular not regular not periodic basis, but it happens quite often we just mix. It up so we give we give customers a reason to buy now and in a franchisee a reason to change up a sale.
Sales pitch to have something to talk about this customers.
Okay. Appreciate the color on both those questions and I'll leave it there thanks guys.
Well take our next question from Bret Jordan with Jefferies.
Hey, good morning, guys.
Jordan how are you doing.
Good Hey, when you think about the impact of I guess you know the most.
Next it sounded like the hand tools were very strong do you think stimulus playing a role I mean, obviously the garage, they're seeing business as people are putting their personal cars back on the road heavy you, Hey, Hey, wrong I think I don't know I look I think my guess is first of all our guys are employed mostly.
Now you can look at the thing think dip I think the you know the number of hours went down 5% or something like that in April and then it snapped right back and generally what we see what I'm hearing from my from my franchisee when I talked to a lot of them. The garage is it pretty much employed so I don't think unemployment is a bit.
You know what I mean, the unemployment deal or that the TV I like you could have argued that the whatever people got in the beginning you know like 1200 Bucks or so you know that might have helped.
You know I am reading that people put that in a bank I don't know it but I think it would have been over in the second quarter, we kind of thought that might have helped us in the second quarter that was one of the questions for US you know when we saw the tools group go up and hit the 3% or I guess was 2.4% United States and that kind of thing we caught me that might have been helping it.
I see my sense of it is it was.
It was probably either banked or spent before.
Before you know I don't think it was driving that third quarter I don't.
I don't think so I don't think our guy.
I don't think our guidance I don't think our guys are sitting on the edge of the seat waiting for Congress to approve another one.
Now if they can get a mix of cash versus credit buyer I mean, it sort of seems like you had a very strong tools number but not as much growth on the credit book. So was there a real shift year to cash purchase in the third quarter.
Oh, well there was there was a shift toward there was a shift toward smaller not shift but in the quarter. We had nice hand tools and they tend to be our eight not not not long term credit remember when you say credit when you are talking credits.
Uh huh.
Everything sold off the bans on credit.
Everything.
Right and so okay, you're only talking about whether it's 12 to 15, we credit our you know three year or four year credit really so everything sold on credit. So I don't think if you save you put that in a positive sense everything was sold so I don't see people you know paying cash so much I haven't heard people pay in cash and and our our rate book is up some you know because half.
<unk> strong anytime handles a strong you see that happen and the the longer term credit tends to be a little bit less but actually we thought longer term credit given the environment was pretty robust in the <unk>.
In the quarter.
As I said I think it's a it's a sign of things getting better in the in the general view of the of the repair shop.
Now if somehow you know.
Now a miracle happens and the people in Washington, and get together and they decide to send everybody 1200 Bucks I think that would be might be cherry on top I don't know I don't think we got much in the third quarter, though I really don't.
Did you talk about the cadence of the third quarter I mean, obviously the timing you didn't have the franchise event. So maybe people were spending more money early or you know right I mean, if you can't get a third.
Brett the cadence in the third quarter isn't as clear as a second quarter because were coming off. Some you know April is God awful Huh you know so I mean, the thing is you know you're coming off of that and you kind of roll up but generally if you look at I mean, if you want to talk the tools group. If you look at the sales off the van which is not really subject to much excess.
See impact.
It was each month was into the double digit range clearly so.
So I think the cadence was pretty solid as often.
Off the van you know you get up and down depending on where the SFC is I think here you know sometimes like for example, when you have alive at the SFC people tend to keep the powder dry because they want to get there and spent they its almost like a Disney World. We were you know, it's almost like a fun experience when they get their they run around any by all this.
Stuff and so this was a little more measured because it was at a distance so not quite as exciting and so they spent a little earlier than they would have.
And I think gotten up so that's that's a fair view, but if you look at the stuff off the band it seem to be solid.
Didn't seem to change her.
All right. Thank you.
Well take our next question from Curtis Nagle with Bank of America.
Hi, good morning, Thanks, very much I'm, sorry, how you doing.
This is Nick how are you.
Thanks Dude.
Oh, we're doing okay.
That's terrific glad to hear maybe.
Maybe just first one on inventory I think it looks like there was a a nice work down could you talk a little bit.
You know about which segments. You know you saw I guess, the largest declines or I guess the biggest move probably talk with your daughter I think I think we didn't see much of a down tick in the in the tools group inventory, but that you have to look at it through the lens of seasonality tools grew up inventory always rises in the third.
Quarter in anticipation of the sales and in anticipation of having to make good the order burst that comes out of an SFC. So fundamentally inventory flat in the quarter meant that tools group seasonally look pretty good.
Really compared to what we what you might expect that there had been a normal year. The other groups I think came down I think our overall inventory was was down a reasonable amount. So that that's a I think it was a you know as you might expect in this kind of era.
Yeah, we had inventory in constant dollars card. It was down about 28 $29 million as Nick mentioned pulls were relatively flat in terms of their inventory move or the other were shared kind of equally between the commercial industrial group arsenide, both had contributions to lower inventory, which you'd expect because their sales were not as robust as last year.
But I want to what I wanted to emphasize in the call, though hey.
Hey, one of the things that I pay was both were sequentially improve I mean.
She and I was down what 20%, 19.7% I think it's about 20% in the quarter second quarter, 8.6%, that's a nice improvement and then.
The one that really came from behind was was Rs and I we thought.
I think I'll I'll share with you we thought Oh, that's tonight the garage themselves.
Based on the based on the mix based on the atmosphere in the <unk> in the in the Oems would have been harder to come back would take longer to come back, but they moved from <unk>. They were down like I said in my script, 29.8% last quarter and they they knocked us through I think 2.2% organically on one down a 1.6.
<unk> percent as reported so pretty big move.
So I think the you know what you're seeing in those businesses is even though they are they don't have the starry numbers that the tools group has because their their industries are are still going through accommodation and aren't even approaching psychological recovery showing some pretty good pretty good movement.
Understood Great and then.
Maybe just a quick clarification in terms of I guess, some sequential trend in.
So on the J.M.C. the tools group into Q3.
Rich you did approve or how did that trend I, just didnt catch brochure should improve and improved but it was I was I would say this it was it.
In Q2, it was running ahead of the sales to the van items.
<unk> sales it was kind of I. If you if you want to think of it. This way you can think of it this way and I would think that Q2 men inventory it was being pushed out a little bit you know the inventories are going down because the sales off the van we're a little bit more robust not great, but they are more robust than and they started to spike up in June which is why we started to talk about.
The tools group in June we could see that in fact, we said that on the call today and then and then in in in a in the third quarter more or less equal the van the sell stuff and were about equal to the you know for government work were about equal to the sales off the bat that.
That's how it happens you know so I I think just the sales to the van kind of caught up doesn't look like the building inventory, though in the third quarter, just looks like they kind of stayed stable.
Okay very good thanks, very much and Alcatel.
During the quarter it looks nice.
Well take our next question from Gary Prestopino with Barrington Research.
Hey, good morning, everyone.
Morning, Gary.
Most of my questions have been answered, but just just one in terms of you had a little bit of a tailwind from FX on the sale side, what kind of impact does that have on the.
The adjusted EPS for the quarter Aldo.
Well, we actually had a negative six cents of EPS driven by currency because while the sales line benefited there was currency transaction losses for it simply driven by sales of U.S. manufactured product in Canada, and the United Kingdom, but also the commercial industrial group or it has to do with flows between euro based costs.
<unk> is versus Swedish based sources of supply that's what drove the transaction what happens Gary is that is that the the transaction where its translations tend to be current transaction and if you look back because you set the cost of product when the when we should when it gets shipped and it doesn't get sold at sometimes later and that's what drive.
Is that different so in effect transaction kind of trails the situation.
Okay.
Experts expect less negative impact certainly in Q right Youre right you get bigger sales the good news lower profit Bad news.
So okay, great and then just you know early on in the quarter here, particularly we're hearing a resurgence in this cold bid and I think you know the UK has.
Put in some more stringent lockdowns.
Could you maybe talk about what you're seeing early stage in Q4 with various regions of the world.
Well, we don't really give guidance, but look I can tell you my broad view is that boy you know if you look at the United States.
I don't know I think vehicle repair.
Typically won't get shocked again.
You know I didn't.
Not in fact everywhere wont get shocked again, whatever happens I think our people will accommodate better than they did in you know the April and March area. So I think that's a kind of a broader view I think look I think the United States Kinda continues to March you know nobody knows whats going to happen exactly but I think our deep.
Combination continues in the United States and all our areas Europe's got twin problems with economics, and so on so it's hard to see across all those geographies and what's going to happen. There again, though I don't think they get shocked again. So I think you know they manage it but it could be slowed down or could be accelerated Asia Pacific I think China.
Causes okay, Japan should be okay, I think I don't know what that is happening in India, and southeast Asia, but they seem to be completely flat on their back in terms of their ability to deal with the situation. So so we'll see how those that's how I see it playing out and I think you know, we we see upward trend like we said last time I think I believe.
Even the shock accommodation psychological model, but this is the the <unk> yeah.
The value of that slope upward.
We'll change depending on how conditions occur I do think though were four to fight against the really bad news.
And I really I'm not telling anything we could have just as good a quarter or a better quarter next time.
Okay. Thanks appreciate it.
Yes.
We'll take our next question from Scott Stember with C.L. King.
Hi, good morning, guys.
How you doing.
Yes, most of my questions have been answered also but just going back to the UK and the tools group.
I know that obviously.
Things have been tough there for the past year year, and a half and got worse in the second quarter, but that was a pretty eye popping improvement that we saw in tools in the UK could you just.
Talk is there was there anything else going on there with their new products introduced and just trying to get a sense of the sustainability of that.
Well, it's a tough it does a couple of things I look I think we believe the UK came along way and in fact, they're acceleration upward had already be gone.
In June.
It just it just wasn't the level of U.S., but you could if you go back they were deeper in April.
And if you looked at the slope of the curve upwards in June you said wait some is going on there.
And I think part of it was is that okay. You had people suffering through the shock and they were really shocked and you had the economics on top of it in my own personal opinion with three things one is they started to accommodate.
To the virus kinda got People's minds off of Brexit.
No I didn't pay attention you know so much so it wasn't weighing on people and in terms of economics of coming out of that at least getting a little better in the virus. They started to figure out and three we made changes to our to our network to try to make it try to get training the new product. There is every bit as robust as here just follows a little bit later so were introduced.
And some of the diagnostics that had already been introduced air and wasn't there and other new products. So then constant stream of new products. It wasn't different than the U.S., but I mean, we kept pounding the new product in there I think I think those are the three factors now it was up as you say it was up quite nicely well see how it plays out I don't think it to get shocked again, though.
Got it thank you.
Sure.
Well take our last question from David Macgregor with Longbow Research.
Yeah. Good morning, everyone Nic congratulations yeah, congratulations on a good quarter.
Okay.
I guess you question been asked earlier about some of the spending patterns and technicians that became came off at night. They differ on I just wonder if we could go back to that sort off with your and just the guys that qualify for that program and benefited from that program as they came off that program what kind of spending patterns did you see from them or are they pretty much removed from the.
Market strength that Youve achieved this quarter is off the balance of the base.
Well, David I think people keep spending we don't isolate on what do you have just an easy low remember they have two thirds of our business activity or with the franchisee on a revolving account type basis.
I remain generally active I'm sure you get all kinds of examples some people might not buy for a while that people keep buying each and every week or get all kinds of patterns, but the fact that there was a deferred program an opaque really radically changes the flow of activity because again, we've had programs like the more we're starting to to certainly given the unusual nature of it.
But if you pick up a pretty consistent in the thing you have to always remember people I think earlier on the call about stimulus remember everybody who has a job and I think we said the most of our customer base. So as it has more.
Has more discretionary money in their pockets simply because a lot of other venues to spend your money or not available whether it be going to dinner the movies Oh.
A sports game of so the people have more money beyond the stimulus checks coming in real and.
This is like the bi tools, but.
As demonstrated over a couple of thoughts one.
One would think though that if somebody is coming off a 90 day deferral, because the restructure credit that they might not be very aggressive buyers and say wait a minute wait I mean, that's an assumption that's untrue.
Isn't there, it's not that they're not strapped for credit.
Here's the thing we didn't we didn't just give 90 day credit to the people overstaffed for credit.
No over 90 day credit as a reason to buy now it's like it's like a Carlo. So so the point is I think I think the point is as those people who are you are you you're going to buy a steel tycoon David Okay. I can get it 90 day deferral or not.
Ticket I might take it right you might take it all the money that you have you might take [laughter] yeah Sharon.
Alright, Thank you for that clarification I appreciate that.
Just explore as well the divergence between kind of the gross.
Achieved in Cnine arsenide versus what you are seeing the tools group and I appreciate directionally, both cnine herbicide moving positively versus what you printed in the second quarter.
But still high single digit declines as you know high single digit declines in OEM dealership business and our aside seems a little <unk>.
In contrast to up mid mid teens in the tools group and so I guess your thoughts on that divergence and then secondly, your do we see we see those other businesses catch up here in the fourth quarter could you about.
I think I think this I think they have the potential to catch up I think I'll tell you. What I think you can write this item black letter law in your no show US about this just in general in General what we see is.
When you have anything like that.
In terms of a macro what we see is the smaller business.
If they have if they continue in the business, which vehicle repair has been continuing in the business. They don't think so they're they're like they're like making money, they're spending it to get kind of roll them I do think the bigger the business the more tends to look at.
Now what's going to happen in the future I'm not sure they get a little bit more reticent them. They have a little bit more I guess forward outlook that troubled him in the day that that that weighs on the decision making is that I think this has happened through my entire time here we've seen this well.
As as macroeconomic expectations go up and down. So if you look at if you look at Cninety, you see certain other segments, particularly troubled, particularly troubled other segments like military and international aviation up and you see a little bit heavy trucking, a little bit better and so you can see that but eventually we see them recover.
Right. That's a difference it's actually the mill you the industry the environment and also the fact that the garages are smaller and therefore closer to that cash action and the actual action and therefore more confident as I see it continuing I think this is a psychological and then if you go to arsenide I think you're looking at a two pronged effort you have you have the independent.
Yes, which tends to get a little better but you also have the dealers who are pretty shook off at the beginning they were rolling they were coming into the virus as you probably know with probably a negative view hey, the Sars are going to be down for next year is it all a good I mean, we're going to go you know so the thing is they sort of entered this.
With kind of a downward luck, a maybe even extra inventory. So then they got through it then they start to come up but I think those guys get a little bit more reticent going forward in terms of investing remember, our cnine and arsenide tend to be more capital base type.
Type actions right there, they're good business, but they're more capital and you would see them being more or I guess washes I think they come out of it though I think I think we're loving the arts and I are us and I look this quarter really.
So let me, let me just ask as well because.
So I'm sure.
Seems like software sales may have been strong contributors this quarter as well you talked with you follow D. Nine but there were some other introductions whenever I look I'd software's about a third of our Tonight. The Mitchell one software business, which as you know repair shop information and run in the repair shops in both cars and trucks you Didnt talk about.
Oh, you're talking about the tools group, yeah, They talk about art and I I got I assume you're talking about I'm talking with the tools group you're farming, sorry add it sounds good it sounds good.
Where business was pretty good, but I wouldn't say I wouldn't say it was an extraordinary contributor.
Oh and outside country outsized contributor Didnt stand out really in any way to us so much in this quarter. It was okay, but you know not to put you want to call. It you wouldn't have Paul good variance driver.
Right. That's my last question for me.
The franchisees are taking big ticket again sounds like your storage business was good sounds like diagnostics is okay.
We should see some pretty good night, we should see some pretty good originations numbers in the fourth quarter shouldn't be so <unk> wow okay.
Now assuming itself right well sort of.
Right right right right. So that was I guess, just it seems okay. It see yeah, that's a reasonable assumption right. So if we see home [laughter], if we see the consolidated as they always have a choice to make it remember that snap on those benefit by having what I would say is the industry's leading residual values. So when they.
Take trade ins, particularly in diagnostics it becomes a factor.
That's where the penetration rate on diagnostics for one reason as lower there's a good chance that the finance can be handled through the R&D accounts. If you take in as an example, 2000 dollar trading unit on a 3000 dollar item.
You don't have to necessarily finance so that you see so that's why you get a little bit of a different blends and I think in this low interest rate environment. Some franchisees feel they have the wherewithal to stretch a bit or borrow locally if they don't ball from snap on credit.
And I think they have a versatility given the low interest rate environment. So that's why you don't necessarily have the same predictability as to what falls out that easy program I can't remember the franchisee decides that snap on doesn't decide that going on but I would think at this point franchisee would consider I got a 100% risk on the R&D versus 25% risk you see in that probably better.
That's not that's not necessarily true, but David but take a step back you can look over the long total with time, our default rates in the franchisees see this revpar franchisees are pretty long of the two they have on average 40 years of experience they see that the defaults, while never guaranteed are pretty predictable to some extent.
And through good and bad times kind of steady so no rush to outboard at least I can always on the fringes, you'll get a little bit of everything, but they don't rush prepared because they well, let's give the snap on credit because only a 25% exposure versus 100% of course, there are some that might consider that but the great.
Relation does not yet there the the franchisees habit, having internal calculus that says I want to have a certain amount of short term, our a and a certain amount of longer term stuff. They try to maintain it in that way.
So so to the extent they have a a what I would call a borderline events in a sale that might push them, one way or another I believe that to be pretty true and so you know the thing is yes, it's 100%, but you know its shorter term if they think the guy can pay it they like it they'll get it they'll get him liquidated and.
On to something else.
Well that people use a metric favorite the RF flows, which we don't look at it that way, but some people there or what's the rock that must be bad things are coming Ari flips are actually down from historic levels.
I read a lot into that but okay.
It doesn't seem like the franchisees are trying to offload credit riskiness of any dramatic not to mention the franchisees seeing flush I mean, they're they're kind of pretty low in terms of on hold so I think I think you know as as a as a network.
I think the franchisees are probably in a better place than they've been in a long time.
Thanks for taking my questions Congrats and good luck.
Good luck this quarter.
All right. Thanks.
Thank you that concludes today's question and answer session Ms for <unk> at this time I will turn the conference back to you for any additional remarks.
Thank you all for joining us today, a replay of this call will be available shortly on snap on dotcom as always we appreciate your interest in snap on and good day.
Thank you ladies and gentlemen. This concludes today's teleconference. You may now disconnect.
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