Q2 2021 Snap-On Inc Earnings Call
At this time I would like to turn the conference over yeah that'd be.
Bert Scott excuse me Vice President Investor Relations. Please go ahead.
Thank you Stephanie and good morning, everyone. Thank you for joining us today to review.
Requires debt, which are detailed in our press release issued earlier this morning.
On the call today, Pincheck snap ons, Chief Executive officer, and almost totally Ari capex.
Chief Financial Officer.
Jack will pick out their call. This morning with his perspective on a per families.
That's what I'm here, a detailed review of their financing or any thoughts.
After Nick that people think that we will take your questions.
As usual gift items.
To supplement our discussion these slides can be accessed under the downloads chat in the webcast here as well.
I think that kind of 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 every day.
Otherwise state 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 materially from those in the forward looking statements are contained in our SEC filings.
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, and 15, both can be found there.
With that said I'd now like to turn the call over to Nick Pinchuk Nick.
Thanks Sara.
Good morning, everyone.
As usual I'm going to start the call by covering the highlights of our second quarter.
And along the way I'll give you my perspective on our results.
Once again they were encouraging.
Our market is robust and promising and our continued progress.
Price amidst the pandemic the pandemic is over but we believe were stronger right now than when it all Scott.
Of course also speak about what it all means then Aldo will move into a more detailed review of the financials.
We believe that our second quarter again.
It demonstrates snap on's ability to continue its trajectory of positive results over kind of a right Scott going February accommodating to the lingering virus environment, leading the challenges of the day across the business world and advancing along our runways for growth and for improvement.
Our reported sales in the quarter were 1 billion 80, 181.4 million.
Versus last year, $357, 1 billion or 49, 3%, including $20.6 million of favorable foreign currency change and $19.6 million in acquisition related sales organic sales were up 42.5 per cent, which you can share that you're going to carry group a fourth street.
Quarter being being a bulk weekend clinic level abhiseka trajectory that defines a resilient and flexible capability.
The Apple operating income up towards $17.1 million was up 126 million from last year, which included 4 million net restructuring charges.
Operating margin was 21% up from.
But you got from 'twenty level up 12, 6% of what people want to work with that as adjusted for restructuring, representing a 700 basis points as adjusted and tools.
Financial services operating income of $68.9 million increased 19, 6% higher origination lower losses delinquencies below pre pandemic levels, our finance company passing the greatest stress test of our time with flying colors.
And that would be growth combined with opco for a consolidated operating margin of $24.5 per cent of 560 basis points as adjusted.
Quarterly EPS.
With $2.76 or 3.2 per cent from last year and excluding the 2020 restructuring charges EPS grew to $96.9 per se.
The pre pandemic levels with 2019 be correct. The EPS grew $16.8 per cent.
Clearly tracing and ongoing positive trend I've said, it before but it bears repeating we believe snap on is stronger now than when we entered this great wintering and we believe our second quarter's emphatic evidence of that that Scott.
Compared with 2019.
Sales in the past quarter grew $130.1 million or $13.7 per se that reflects 23 million of acquisition related sales $17.2 million of favorable foreign currency and eating 9.9 million.
Or.
And the $89.9 and kit and $89.9 million or 9.3% organic gains.
But you got from 'twenty, 1 Opco operating margin of 21 per Se was up 10 basis points from 2019, but that gain was achieved against 70 basis points unfavorable.
Unfavorable currency and acquisition impacts all while absorbing the lingering effects of the virus, it's not gone.
So those are net numbers.
From a macro market perspective, it's clear that.
Automotive repair sector remains favorable.
The technicians across them average still accurate pulse repairing cars and trucks, keeping the world running and they are busy and as expected. After the COVID-19. It appears that people are leaning more toward personal transportation and are holding onto their vehicles longer every year whatever approach is a strong and resilient market.
Cash from our franchisees Inc.
Moving on numbers.
As we look forward, we see greater opportunities as vehicle checks are collared, even more complex reports new technologies alternative powertrains greater proliferation of driver assistance electronics flow.
Music to our ears.
And then they have to repair shop owners and managers.
Territory, a little Warmness, particularly in Europe, but a return to growth from a terrible accident dealerships, we're starting to invest under car equipment and OEM programs are coming back and our clients taking advantage of that trend with new equipment offerings and advanced database solution continually improving our software plots are diagnostic me visa products like Mitchell 1 with cash.
Information software ex shop management software and electronic parts catalog and our deal with that shut in there from a technology.
I'll just start classic unit big databases.
And getting more powerful and easier to use helping the shop fix it right. The first time efficiently.
Per shop is changing.
Rising complexity.
The archdiocese of products to match.
Finally started to critical industries, where the step out wells out of the garage shop in.
Consequently, this is where the thing.
Group operates our most international operations, where the customers having towards the longer term impacts of the virus from epic slowed accommodated recovering at what I'd call very great segments, like oil and gas and radiation for Jack seems like Southeast Asia Korea still down.
Despite the variation did see growth in critical industry improvement and education.
They're coming back and in power generation and heavy duty sleep, all combining to offset that continuing turbulence. So all I describe our C&I market, that's healthy and representing a clear opportunity coupled with auto repair we believe our markets now and there is considerable opportunity ahead and we are.
Opportunity ahead for us as we move along our runways for growth and improvement.
I can't leave this section.
Robust progress set up on their part possibilities well speaking on the engine of our Vance.
Advance snap on value creation customer connection innovation, developing new products and solutions borne out of insight, but observations gathered right in our workplaces.
And RCI.
Guiding the expansion of our franchisees selling capacity with better processes Whatsapp with training and they didn't focus on social media. It won't help drive our progress overcoming the difficulties of accommodating the virus and then enabling us to take full advantage of the opportunities and short a continuing positive trend forward.
That's the overview.
Let's move to the segments.
In the C&I group.
Yes, a quarter about 33.8 per cent or $88.6 million versus 2020, including a 71.3 Nicholas.
26, 3% organic upward uplift with double digit progress across all of the divisions.
Thanks perspective, C&I operating income of $55.5 billion increased 1.1 related unfavorable foreign currency.
The range of $32.6 million compared to 2020, which included a $2 million 2 million of restructuring.
That all means.
Adjusted increase of over 122.9 percentage.
The operating margin.
It was $15.8 per cent.
And as reported increase of 710 basis points.
630 basis points as adjusted and it's an uplift of 120 basis points from frequent from the preclinical delek level in 2019, despite 90 basis points of unfavorable currency.
When compared with pre pandemic 2019 sales were up 4.6%, including 4% organic gains from lots of things like bright spot.
For a core team that's been in Europe, just deliver yet another quarter of growth expanding beyond pre pandemic levels against the wind with a smile litho tools management system, leading the way tailored product specific to customer needs.
Europe is a very market environment, but actually in Europe, because of the fine economic gravity again.
Net positive with strong contributions from recovering everything correct why do you feel like heavy duty power generation.
Before education.
Scott to the party, just now and from Asia Pacific geographies, like China, and Japan, and those gains were balanced by declines in attenuated sectors like the military aerospace and natural resources all still weak.
We do remain confident in it.
To extending in critical industries, and we're committed with great new products.
Speaking of product in the last quarter. It helped solve challenging task force aviation. Another critical literacy we watch the new snap on 14, 4 volt micro lithium cordless right angled many drill with its 6000 RPM, making it ideal for drilling a variety of materials plastics to aluminum fiberglass deal it doesn't.
Contract 90 degree head.
Which provide easier access to combined spaces I mean, just as worker fatigue is a big factor.
It also offers a higher quality chocolate achieves precise drilling with minimum run out and shrink price powers, because I've met with considerable reliability.
The capital.
Awesome.
There's a double double ball bearing supported single share spiral bevel gears Spears, a mouthful, but all means that the new powerful powerful has a clear superiority. The durability. The cordless writing committee is a great integration with an array of advantages and an extra noticing.
Bret C&I, a promising quarter moving down it's really true growth with strong profitability C&I, a y O O I module.
Pointing per se.
Now onto the tools group.
Sales of $484.1 million up 168 million, including 154 million or 46, 7% organically.
Double digit growth both in the U S and the international operations and the operating margin was.
21, 4% up 930 basis points.
Compared with free virus 2019 sales group, $3.8.3 million, including 70 points to $70.7 million or 17, 1% organic gains in this quarter was 21.4 per cent operating operating margin was up 380 basis points compared with a free virus numbers coming out of the pandemic stronger Inc.
Another call it another.
Say powerful I guess, that's a theory, but another positive quarter with double digit expansion.
Across all geographies.
You know all trucks.
We do believe our van network remains quite strong.
Just a few weeks ago I spent time with a dozen franchisees are on a dozen franchisees in our U S. National Franchisee Advisory Council Council that are all going to pilot tool storage plan.
We're pumped and prosperous excited by your current position positive about the other banners or regions in the regions they represent and very optimistic about the prospects for even more.
Yeah on the windshield surveys you.
We see other indications of strength like the business health metrics they remain quite stable.
Qualitative and quantitative indicators, both very positive and that positivity was not just from Charlotte was reinforced by the extraordinary Stefan was recognized again this year among the top 50 in the franchise interest you got to really entrepreneur magazine and once again, we scored highest in tools distributions category play to help her for quite some time.
And now it's Scott recognition.
Just kind of a profit pool.
Reflects the fundamental and contemporary strength of our franchisees kind of our overall van business and it would not have been achieved without a continuous stream of unique new products hand tools were up in the quarter and part of that.
Part of that.
Pork is rising in importance, it's more mechanical provisions precision becomes necessary to support vehicle automation and we're riding that wave with great new products like our New Inc. Micro torque wrench with quickly. He said the quarter inch drive quick relief as a positive locking mechanism to obtain a socket solidly up.
Securely in place at the same time, it almost a push button free easy tools. This engagement it hopes and Jack sports important under the Hood at the time favorites quite a time saver and close clearance of applications like valve cover renewables and spark plug replacement that happens every day in the garage a tool also offers visual and visual.
Portable and like rationale was to come from that the proper talking about applied and it has a wider torque range 12 to 240 pound interest and a new Michaels also includes a 15 degree flex head ratchet per better access for fasteners, a 72.2 per quarter inch drive dry price ratchet, enabling efficient.
And the Tiberius and <unk>.
Plus or -2% accuracy.
Mm micro tactics precision travelling to the next level.
So starting off strong in the quarter part of that success was our case T. O pen 23 get true rope here why 72 inch triple banks tool storage box office, 3 extra wide drawer for longer and larger tools anyway technician more translational all options are.
Our cash at locking to watch my thesis, which prevents dwarfs from drifting opened and I still like casters, providing a smooth ride.
She only rolling.
Excellent week capacity plush.
It adds are early deal items power tap, which spans the full width of the cabinet for better illumination and breed I appeal and includes 10, Washington D. C outlet for U S. B ports, so charging a large array of texts electronics.
K T. L 10, 22, a tree storage efficiency and a box that catches sharp attention in any shop.
Sales of the unit.
Well.
Oh Wow.
Our new products are in fact, making a difference in the tools Group Inc.
Yesterday the numbers they also and the group also registered its fourth straight quarter.
Of pre pandemic levels.
Group Unmistakably isn't moving onward, and upward now I want to be honest Tonight group sales were $62.7 per cent or $153.6 million versus last year, including $135.7 million or 54, 1% organic uplift with double digit growth weighted towards under car equipment and our OEM project.
Profit businesses.
But with our diagnostics and information products businesses.
But with our diagnostics and information products and still delivering strong double digit increases in interest in it.
2 the weighted toward under car equipment or OEM projects from an earning perspective arsenide operating income of $86.7 million represents a range of $36.1 million or 71.3 per cent compared to 2020, which included 1.4 million of restructuring.
Operating margin was 21.8 per cent, an increase of 110 basis points from last year 60 basis points attitude as adjusted but it gets to the 180 basis points impact of unfavorable currency and acquisition effects.
When compared with 2019 sales were up 14, 2% as reported and organic growth was $29.7 million or $8.4 per cent with double digit advances in under car equipment OEM projects diagnostics and information.
Fourth America, all of that being attenuated by a general weakness in Europe.
For profitability the Oi margin was 21.20 per cent.
The other way a margin of 21.20 per cent was down 360 basis points with a 150 point impact from unfavorable currency and acquisition effects and with a further drag from the higher sales of under car equipment and OEM projects. Both at the lower end of arsenite margins.
Having said that our tonight as great opportunities and we're fortifying its way forward with more new products. We just introduced our newest loose mobile work centers.
Giving the technicians the ability to use the full capabilities of our top of the line diagnostics information systems, including our exclusive best track intelligent diagnostics from anywhere in the service day.
It is a compact footprint for great mobility, reaching all over the shop. It also incorporates a lockable to dror to storage cabinet and a large 27 inch touch screen display the newsrooms workspace and offer significant improvements in convenience and security and visibility combined with the power of our most sophisticated databases.
Just the ticket for those shops that want to solve the most difficult repair challenges and Wanna visibly displayed or advanced capability for all the customers to see if they come in and shop.
And the new workstation is making a difference attracting attention and it's setting new volume levels for each category.
So to wrap up our sponsor nasty improving position with repair shop owners and managers strong growth across all the divisions with covering areas of under car equipment, and OEM projects and expanding product lines to lead the way for.
Well those are the highlights of the quarter shows strong progress everywhere.
Unmistakable strength.
C&I reporting a positive performance with significant profit profitability against variations across industries, and geographies and our C&I expanding volume and independent repair shops in OEM dealerships gains in the U S overcoming weakness in Europe.
Overall overall sales and income.
Pricing for the corporation up nicely both versus last year at $42.5 per cent compared with pre pandemic levels at 93 per cent of continuing a V shape recovery.
Operating margin was strong 21 per cent up again in the face of 70 basis points of unfavorable currency and acquisition effect.
Yeah.
$3.76.
In the quarter was up for the fourth quarter in a row.
Of course as last year.
Up versus last quarter.
Uh-huh versus pre pandemic levels.
It was another encouraging quarter.
Now I'll turn the call over to Aldo.
Our consolidated operating results are summarized on slide 6 the second quarter FY 'twenty, what it sort of its solid financial profile, particularly as compared to last year's heavily pandemic impacted second quarter results also compared favorably with the second quarter of 2019, which being a pre COVID-19 times group.
They serve to be the more meaningful base.
Net sales of 1 billion $81.4 million in the quarter increased 49.43 per cent from 2020 levels, reflecting a $42.5 per cent per guest sales day like $6 million of acquisition related sales at $26 million of favorable foreign currency translation sequentially so debt.
If approved by $4.5 per surface compared to the first quarter of 2021.
Digitally net sales in the period increased 13, 7% from $951.3 million from the second quarter of 2019, including a 9.3% organic game twenty-three per port.
Zero million dollars of acquisition related sales.
$17.2 million, a favorable foreign currency translation.
Consolidated gross margin of 52 per cent approved 310 basis points from 47, 1% last year, which included 30 basis points from restructuring costs.
The gross margin contributions from the higher sales volumes and benefits from the company's RCI initiatives were partially offset by 20 basis points of unfavorable foreign currency effects.
Operating expenses as a percentage of net sales was 34, 1% group 440 basis points from $34.5 per cent of last year.
Which included 20 basis points from restructuring costs. The improvement primarily reflects the benefits from higher sales volumes, partially offset by higher stock based cost excuse me.
And 70 basis points of unfavorable acquisition index.
Operating earnings before financial services of $217.1 million compared to $91.1 billion in 2020, reflecting $138.3 per cent.
You'll hear from them.
As a percentage of net sales operating margin before financial services of 21 per cent for 750 basis points from 12, 6% last year.
Which included 50 basis points for restructuring costs.
Services revenue of $86.9 million in the second quarter of 2021 compared to $84.6 million last year, while operating earnings of $68.9 million increased $11.3 million from 2020 levels, primarily as a result from higher revenue and lower provisions for credit losses.
Consolidated operating range of $286 million increased $92.3 per se, but $148.7 million last year.
But as a percentage of revenues the operating earnings margin of $44.5 per cent compared to $18.4 per cent in 2020, which included 50 basis points from restructuring costs.
Excluding the restructuring costs operating earnings margin twice, what you want increased 560 basis points from last year.
Our second quarter effective income tax rate of $23.3 per cent compared to 24, 1% last year, which included a 20 basis point increase related to the prior year quarter from structural charges.
Net earnings of $208 million or $3.76 per diluted share increased $106.8 million or $1.91 per share from last year's levels, representing 803, 2 per cent increase in diluted earnings per share.
That's a comparison from 2020, excluding the restructuring charges of $3.3 million after tax or 6 cents per diluted share diluted earnings per share increased $96.90 per cent.
Relative to the second quarter of 2019 net earnings increased $27.6 million with 54 cents per share representing a 16, 8% increase in diluted earnings per share.
I'll start from our segment results.
Starting with the C&I group on slide 7.
Sales of $355 million increased 33, 8 per se from $261.9 million last year, reflecting a $26.3 per cent per gallon sales day 7.
$7 million of acquisition related sales and $9.6 million of favorable foreign currency translation.
Your organic gain reflects higher activity at all of the segments operations and they call. It mid teen increases in sales to customers in critical industries within critical industries robust sales gains were achieved in general industry heavy duty of technical education, but were partially offset by year over year declines in sales to the military.
Which have remained strong as the pandemic impacted period last year.
That's a perfect comparison net sales for the period increased 4.6% from 2019 notes.
We reported $4.4 million per game sales game $7.7 million of acquisition related sales and $6.4 million of favorable foreign currency translation.
That's compared to 2019 sales in our European based hand tools business were up high single digits with respect to critical industry sales activity of that period, our military international Aerospace and natural resource a separate 2 or below 2019 levels. All other critical industry segments are at or above the second quarter of 2019.
Gross margin of $39.5 per cent improved 510 basis points from $34.4 per cent from second quarter of 2020, which included 80 basis points for restructuring charges.
Production from the higher sales volumes and the improvements, resulting from the lower restructuring costs were partially offset by 60 basis points of unfavorable foreign currency effects.
Operating expenses as a percentage of sales was 23, 7% that group 200 basis points compared to last year, primarily as a result will be improved volumes.
Operating earnings for the C&I segment of $55.5 million, including $1.1 billion of unfavorable foreign currency effects compared to $22.9 billion last year.
The operating margin of $15.8 per cent compared to $8.7 per cent a year ago.
Turning now to slide 8.
Sales in the snap on tools group of $484.1 million increased 49, 7 per cent from $323.3 million in 2020.
Putting a 46, 7% organic sales gain and $6.7 million of favorable foreign currency translation.
The organic sales increase reflects a gain of approximately 40 per cent or U S business, but a gain of approximately 80 per se or international operations with strong growth across all product lines.
Net sales in the period increased 19, 3% from $405.8 million in the second quarter of 2019.
Reflecting a 17, 1% organic sales gain of $7.6 million of favorable foreign currency translation.
Additionally, sales in the U S operations were up 18, 8% in that period, while franchisee sales off the van versus 'twenty or anywhere else.
'twenty 1 per se.
Gross margin of 46, 8% from the quarter improved 510 basis points from last year, primarily due to the higher sales volumes benefits from RCI initiatives.
50 basis points from favorable foreign currency effects.
Operating expenses as a percentage of sales to $45.4 per cent approved from 29, 8% last year, primarily due to the higher sales volumes.
Operating earnings per the snap on tools group of $103.5 million compared to $38.4 million last year. The operating margin of 21.4 per cent compared to 11, 9% a year ago, an improvement of 90 with other from 50 basis points.
Turning to the arts and Ivor.
On slide 9 sales of $398.6 million compared to $245 million, a year ago, reflecting a $54.1 per cent for organic sales gains.
From $49 million of acquisition related sales and $6 million of favorable foreign currency translation.
Your organic increase reflects a rise of approximately 80% with sales of under car equipment as well as a gain of approximately 50 per se with sales to OEM dealerships and an increase of approximately 30 per cent in sales of diagnostics and repair information products.
Dependent repair shop owners and managers.
That's compared to 2019 levels net sales increased $49.7 million for $348.9 billion, reflecting an 8.4% organic sales gain $15.3 million of acquisition related sales.
$4.7 million favorable foreign currency translation.
Gross margin of 44, 7% decline from $47.4 per cent of last year, primarily due to the impact from higher sales lower growth markets businesses, and 40 basis points of unfavorable foreign currency effects, partially offset by 70 basis points with benefits from acquisition.
As a reminder, under car equipment as well, but still a patient program related activity both of which are healthy sales increases in the quarter typically have a gross margin rate debt, it's below the yards that I sit with that.
Operating expenses as a percentage of sales price to 9% improved 380 basis points from 26, 7% last year, which included 50 basis points restructuring costs Carter.
Contribution from the higher sales volume benefits from lower cost of debt restructuring were partially offset by 190 basis points of unfavorable acquisition effects.
Operating earnings for the Arsenide group with $86.7 million compared to $56 million last year. The operating margin of 21.8 per cent compared with 27 per cent a year ago now pretty much like that.
Revenue from financial services of $86.9 million compared to $84.6 million last year.
Financial services operating earnings of $68.9 million compared to $57.6 million in force he taught.
Financial services expenses of $18 million decreased $9 million from 2020 levels, primarily due to lower provisions for credit losses, resulting from $2.8 million of lower year over year net loan charge offs as well as favorable growth portfolio trends, which support lower expected reserve requirements.
As a percentage of the average portfolio financial services expenses were 8 tenths of 1 per cent and 1.3 per cent with second quarter's reported towards the 1 and 2020, respectively.
In the second quarter, the average yield on finance receivables of $17.5 per cent in 2021 compared to $17.6 per cent with what reported.
The respective average yield on contract receivables was 8.5 per cent at 8.2%.
The lower yield on contract receivables of 2020 includes the impact of lower interest business operation support loads for our franchisees. These loans were offered during the second quarter of 2020 to help accommodate franchisee operations dealing with the COVID-19 environment.
As of the end of the current quarter approximately $8 million of these business operation support loan Outstandings.
Total loan originations of $285.8 billion in the second quarter increased $30 million or 11, 7% from 2020 levels, reflecting a 17, 9% increase in originations of finance receivables, while originations of contract receivables were down 11, 5 per se, but its contract with people.
Originations, including the apprehension offering a business operational support loans are qualifying franchisees during the second quarter or towards the COVID-19.
Moving to slide 11.
Our quarter end balance sheet includes approximately $2.2 billion of gross financing receivables, including $1.9 billion from our U S operation.
Our worldwide growth financial services portfolio increased $13.2 million from second quarter, primarily due to the higher originations.
The 60 day, plus delinquency rate of 1.2% per the United States extended credit is up 20 basis points from the rate of 1% from the second quarter of 2020.
As we commented during our second quarter 2020 earnings call, we estimated in the quarter.
60 day, plus delinquency rate was favorably affected by 20 to 30 basis points as a result of forbearance and deferred payment programs in place during that period last year.
The weighted to extend the credit or finance receivables trailing 12 month net losses of $41.6 million, representing 2.4 per cent of outstandings at quarter end.
Down 15 basis points sequentially, and down 53 basis points as compared to the same period last year.
Turning to slide 12.
Cash provided by operating activities of $238.2 million in the quarter decreased $15.4 million from comparable 2014 levels, primarily reflecting the higher net earnings more than offset by net changes in operating assets and liabilities, including $98.4 million of higher income tax payments.
The increase in cash paid for income taxes reflects both higher levels of taxable profitability as well as the IRS no longer allowing companies to defer estimated tax payments as compared to the IRS accommodation offered during the second quarter reported.
Net cash used by investing activities from the $49.7 million included net additions to finance receivables of $18.7 day.
Net cash used by financing activities of $147.9 million included cash dividends of $66.7 million and the repurchase of 566900 shares of common stock for $137.4 million under our existing share repurchase program.
Partially offset by proceeds from stock purchase adoption plays of $61.8 million.
Quarter end, we had remaining availability to repurchase up to an additional $251.6 million of common stock under existing authorizations.
Turning to slide 13.
Trade and other accounts receivable increased $4.7 million from 40 towards the yearend day.
Sales outstanding of 56 days compared to 64 days in 2020.
Inventories increased $14.4 million from 2020 year end, but on a trailing 12 month basis inventory turns of 2.7 compared to $2.4 a year at year end 2020.
Our quarter end cash position of $965.9 million compared to $923.4 million at yearend 2014.
Our net debt to capital ratio of 10, 8 per cent compared with $12.4 per sector portfolio.
In addition to cash and expected cash flow from operations, we have more than $800 million of available credit facilities as of quarter end. There were no amounts outstanding under the credit facility debt no commercial paper borrowings outstanding.
That concludes my remarks on our second quarter performance I'll now briefly review a few hours the guidance for 2021.
We anticipate that capital expenditures will be in a range of $19 million from $100 million.
Currently anticipate absent any changes to U S tax legislation debt.
Our full year 2021 effective income tax rate will be in a range of 23 to 24 per cent.
Now I'll turn the call back to Nick for his closing thoughts Nick.
Hello.
Well at the beginning I said I would speak on what this all means I'm going to try it.
First they need that snap on and its market share each of the virus, probably as great spectrum, Our society business and many decades. It was a great shock miles driven downstate dealerships many furloughed no travelers.
Aviation no travelers oil and gas from free fall in education first Fortunately little need for equipment Nobody's its classrooms.
And yet we weathered the shock without trial.
The credit company stepped in with just the right bridging at just the right places for customers and franchisees and our direct selling advanced kept rolling quickly accommodating to the environment snap on kept investing in product in our profit by brands and our people and we accommodated recovered to post 4 straight quarters of above pre pandemic.
Results.
Racing a V shaped recovery in emerging from the height of the storm stronger than we entered resilience against the greatest business threat in memory.
But it's more than 1 drilling more than bounce back. It also demonstrates great flexibility.
World pass through the shock to accommodation to psychological recovery change was the order of the day and snap on adjusted fueled by a fortified advantages in product brand and people. We accommodated the pandemic limited face to face interaction, we expanded virtual contact and came away with from a long term social media tools that will enable our franchisees for some time.
Mission focused on shorter payback items, we gave them a hand tools and power tools and torque when repair leaned away from maintenance to Aflac from parents in a shock we provided E. D. S calibration tools and intelligent diagnostics and helped our franchisees to expand their selling capacity to manage sales more complicated offerings of efficiency efficiently.
With some critical industries weekend, we developed offerings for those that maintained when the virus attenuated the distributors in Europe, we focus on customization and more direct interactions all of that achievement in a time of change demonstrates snap ons flexibility.
And confirms we can prosper amid future change going forward, that's what we've always done by observing work and solving whatever the new problems are.
Snap on second quarter tools group up in all geographies and all product lines sales.
About $17.1 per cent compared with 2019, and Oi margins of 21.4 per cent.
C&I gains offsetting the challenges of the lingering COVID-19 rising profitability to 15, 8% up 120 basis points from the pre pandemic level, even with a 90 basis point impact from unfavorable currency.
Our C&I sales up 8.5% versus 2019 under car equipment OEM projects from public and they go Wow.
At 21, 8% down from the pre pandemic, but still strong.
And snap on overall sales up 9.2% organically versus 2019, and Oi margin of 21% of an EPS, which freed up from 76 cents up meaning meaningfully versus every comparison.
It wasn't encouraging Tvs again, demonstrating resilience and flexibility encouraging for the now and we're topping it encouraging for the prospects of growth and improvement for the future Onstream in 2021 and well beyond.
Before I turn the call over to the operator.
I'll speak directly to our franchisees and associates your supports the fundamental element in driving our continuing positive trends for your role in helping our society and our company to navigate the pandemic.
Kept my admiration.
Their contributions and offering this quarter's strong results you have my congratulations.
And for your continued commitment to the snap on team.
Thanks.
Now I'll turn the call over to the operator operator.
Thank you if you'd like to ask a question. Please signify emerging star 1 on your telephone keypad.
He can speak your phone. Please me Jeremy functions from knocked on why you chose not to be true Clinton.
Again that is star 1 if you'd like to ask a question.
Next question comes from Bret Jordan with Jefferies.
Hey, good morning, guys alright.
When you think about from mechanic in the tools segment, you know I guess demand has been very strong and we're hearing a lot about labor rate inflation are you seeing a real change in their buying patterns that they are more liquid than they have historically bad and more bought more biased to pay cash for higher ticket items I guess.
I think there's a combination of that I think they are I think they are and our franchisees or more from Washington, Therefore, they are able to underwrite the shorter payback that's true.
EBIT for bigger to EBIT for medium ticket items, which might've glad he see before the.
The franchisees are willing to underwrite and let them pay alright, I do think the technicians are kind of.
We have good cash because it's the business that's been going well for quite a long period of time and they are interested in continually investing in tools. So you see that as a factor I mean, that's certainly a factor in the business and and 1 of the things. We see is in fact, you'll notice that are a very strong person who you see in this quarter.
And we see that as a you know the technicians are out buying and still have capacity to buy more in the future because they have borrowing capacity under our U C.
When you think about the technicians as they relate to this next round of stimulus on the child tax credits do you forgive any demographic color as to whether they are more or less likely to have kids that are going to give them the stimulus checks.
You know I don't know the technician population, it's pretty spread I wouldn't say, they're more or less in fact I think there are.
Yeah, Yeah, I think there are the kind of the average day every man. There's there are old technicians and young technician. So I don't think there's any particular concentration you know you don't go into the garage and see all young people you don't got free all people either so I I don't think there's any particular position in that.
And they have some kids, but not different than a regular population by the way, but you know you know how do I have to apologize first voice. He was at the theater district overnight at the Fox game, so he's a little wider than that.
Yes.
That guidance.
Sure.
Thank you. Our next question comes from Curtis Nagle with Bank of America.
I think it's very much just.
Quick 1.
You brought it up a couple of times in the prepared remarks about new social media tools.
Could you explain what you're.
You're talking about what these tools are you targeting new customers.
No not price.
They're not they're not so much sure they target new customers, but what I'm really referring to here without I didn't want to get into it in my remarks, there's a lot to say and I know.
It really what it is is we have we use social media before but in the pandemic and realize the more effective way to use them, what's the pre Greek customers in other words to contact them. You know at first we started out by saying, Okay. We want to stay in touch with our customers via social media already electronic means I can do it at a distance, but then we realized boy, it's a powerful tools.
For.
Making for sales efficiency, when you're actually in front of them because what you can do is contact amount of social media you have a relationship with them. It can pretty brief them about how a great new price what does what the elements of a particular new product just like the 14.4 volt.
From a power tool I talked about or the Tech ranch I talked about and and you can also pre brief them on any promotions, we might have and so then when you're actually spending the time in front of the technicians. You can you can spend your time closing the deal.
And that's kind of serve as well and it's part of the idea remember I always said that the the pacing element for for sale to the tools group has been that the franchisee each time, while they're hitting new limits up 17%.
Versus the first pre pandemic levels on it because we've expanded their capacity.
Okay.
And just a follow up just any general comments.
In the U S a true.
<unk> group in terms of.
The competition with your well.
Because the competitors might not cover anything notable changes.
Changes relative to last quarter.
Geez I don't know, but I can tell you no interest.
We were although not just in California talking from a franchisee.
Out there between implants, and we visit franchisees and I was at the NFA theater outgrown our plants and all those guys think they're crushing it.
So I don't know what that means in terms of market share, but it sounds good to me.
Okay.
Fair enough.
Okay.
Thank you. Our next question comes from Scott <unk> with C. L King.
Yeah.
Good morning, guys and congrats on the books.
The blocks NBA Championship headquarters right here.
[laughter] he's talking about the tools you guys said that everything was up pretty much it sounds like tools led the way hand tools.
Talk about that.
Excuse me Scott I didn't I didn't actually say that hand tools helped us not weighted this quarter.
It was up there but.
But actually the best year over year number was tool storage.
Oh, okay.
But they were lumpy I mean, when you compare it Scott when you compare to 2020 everything looks great.
Talk range that was the nadir that was the main or the downturn, but there's no doubt when I tried to say that that all products or geographies.
Just our way of saying that tools group had a gang busters quarter.
Got it and income is on tools.
Sales from the van versus sell in last couple of quarters, you sounded like you're picking up from like.
Yeah, I think Aldo said, yeah, the generally hold in Atlanta, and they got Aldo said it was what you know we were up 17% versus pre pandemic levels and sales up 21, I think there's something like that.
So I think you know, it's going pretty well just rolling through the van.
Good.
And then lastly on Europe.
P M.
Within.
With the snap on tools tremendous growth there.
Maybe just speak to what's driving the recovery there and did you get for Europe at least are we back to pre pandemic levels.
Yeah.
Okay.
As above pre pandemic levels and now okay to be fair you know Europe wasn't all that high.
2019.
But part of it was it's still clearly above the pre pandemic levels in other words, it's it's offset whatever the whatever the effects of the pre pandemic was tossed group is pretty much across all geographies, which is kind of interesting because I think no stimulus in the U K and Australia and Canada.
Got it thank you for taking my questions.
Sure.
Thank you. Our next question comes from Luke junk with Baird.
Good morning Aldo.
Good morning.
So first question I had a near term question. So we get further into the psychological recovery post the onset of Covid. We saw an increase from the originations growth year over year and sequentially. This quarter, Nick and you put your finger on the pulse of bigger ticket purchases to storage, especially did seem like we're getting closer to where maybe already.
At an inflection point in terms of mechanic attitudes around discretionary spend.
Yeah, I think we are I mean, I don't know.
It could be famous last words look you know you've got a lot of people talking about the delta variance and all that stuff.
I don't think so I think I think the people of work the people in the factories and the people in the garages like I've said on other calls are kind of thinking you know they've weathered the storm you know and they're not gonna get shocked again, no matter, what and so I think they've kind of changed their level, they're there they're starting to recover.
And so you're starting to see people you know when we started our tools starts 1 of the reasons why 1 of the reasons why we took the franchisees franchise council to I'll go to our tools storage plant is everybody's screaming from what tool storage.
That 1 of the effects was set when we entered the COVID-19 they sold down there they used to bat for their use.
They were used boxes that they had taken a trade you know so they can get a lot of that rolling out, but still but still they're looking for they're looking for boxes. Now. So I think things have turned the question is our franchisees so flushed with cash that they want to finance some of those boxes.
Or some of them, sometimes they they sell them.
Our locker, which is which is not quite as expensive as a box and they can afford to finance those kinds of day, but I do think when I talk to franchisees are telling me that it's kind of turned the corner.
It turned the corner is probably too maybe too binary a word for it you know we were coming back, though things are pretty optimistic in the shops.
That's helpful and second I'm wondering looking forward here, how we should think about the impact from TNT conference. This year, what I'm wondering is both in absolute terms I E would you buy the zone.
Oh look like for this year and also in relative terms given the nature of last year's virtual conference.
Yeah, it's gonna be bigger than any of the car, we think who knows.
Still got a few weeks ago, but registrations are higher than they've ever been.
When I talk to the franchisees. They are really excited about going no matter, who I talk to.
I haven't heard I heard they were always kind of optimistic about it but this 1 is really big because it you know what.
Celebrating 100, really and they've been kind of in they've been away for they didn't have it last year sort of really really talking about it. So it's gonna be bigger I think and so what will the effect be I checked for a dog's age on this on these calls that the third quarter can be a little bit you know.
Variable because theres a lot of Windsor Chow you know how how many people go to the franchise conference do they take more weeks what happens in Europe, that's fine, but I'm telling you.
I'm not forecasting any weakness or anything like that I'm, just telling you you never know how those things are going to turn out plot.
I like how we're entering the quarter.
I like our momentum.
Yeah. So I think whatever happens we will make the best of it we're in a great position to navigate the core.
Yes.
Hello.
Okay. He was he had to go to a buck celebration so okay got it.
Thank you our next.
She comes from Pittsburgh Zone with Oppenheimer.
Thank you.
Okay, Chris Aldo.
Feel better yes, I got it.
Got it.
Alright.
Great commentary on the momentum and the buzz around the operations.
The comps are kind of binary.
Cash and.
Language around tools.
That the momentum is so robust.
So debt.
So.
Thank you a little more hedged the last couple of quarters about what kind of run rates moving through continued growth, but what I'm hearing is you're very confident you can continue to.
From kind of not just overall, but that S E T.
2 banks that Alfie from kind of hearing you right.
You know you're not going to get me to forecast the quarter, you know what I mean, I'm not going to say you know we're going to build on a 17 had ever upward over a 17% increase although pre pandemic levels, but all I'm, saying is.
The tools group.
The reason why we say all products all geographies as we can't find anything wrong with it.
And we always can find warts in some places.
This is good.
Don't need so we like our momentum how that plays out in the third quarter I'm not sure people you've got on the call. He said on these calls a long time and I've always said that the third quarter is not.
I'm, saying I like our momentum I think we're going into the quarter really strong with stroke, we feel stronger than last quarter, but I will add that ive always said that the third quarter, it's not necessarily a trend indicator, whether its way up or way down it has to do with all that windage, how many how much how many vacations to people taken Europe as 1 big.
And you know this our franchisees allowed them to take to take vacations as well next last year or more I don't know, but but I do think.
Haven't seen the tools with the store.
Okay, Great and just a more pointed question are you seeing increased uptake and interest in franchisees.
And.
Second associates over the past couple of months.
I don't know Inc.
Look at it starting to come out of the fall off because I think you can imagine why people are a little more reluctant in a COVID-19. There's a lot of interest interaction question. There's a lot of viscosity that kind of thing I think they grew by 2% to 2.5% sequentially. So that's not bad I think so whether that has to do with the thought or.
Actually people are getting more excited I don't know I do think when I talk to franchisees.
They do more quickly go to the conversation G. Maybe I ought to get I'm doing so many so much business, maybe I better get a franchisee the guy in California was just talking about that Scott just started like a few years ago. He signed up for a for a competitor and then he was talking to the Guy and he said I don't want a guy you want to go.
So you want to go to the best So you can't just snap on and and.
And the thing is this guy is so pumps. He has gone up so far he's talking about Gee, maybe I can do more with our system I need an assistant and a lot more and more people are doing that so we would expect some expansion.
Okay.
Sure.
Thank you. Our next question comes from David Magee.
Long term research.
Good morning, everyone.
Graduations on a really strong quarter.
Income scanning growth outstanding results across the enterprise.
I guess I wanted to understand just a couple of housekeeping questions. What was the change in provisions if you mentioned it I missed it.
Change it sorry, sorry day, what would you change your provisions.
A question for Aldo.
Specifically, David but he said, there's the charge offs were lower by $2.8 million, but the charge offs of just 1 of the indicators. When you look at your your overall provision for losses was down about $90 million supposed to cut to the chase, but that's based on assessment of water that the reserve size that we think we need for expected losses over the duration of the portfolio.
So we're trying to a little over 4 years on average so that's sort of a change.
But again as you'll see who can work from Asia, obviously, when the Q comes out.
Look at charge offs or lower the 60, plus day delinquency rate is lower the net trailing 12 months of losses or lower the recoveries are better the nonperforming loans are lower but not a lot of pass through accounts are lower so you put that altogether, that's what it looked us arrive at the conclusion of it.
We're able to be reduced a lot.
Sure that makes sense, but not moving.
That's what I said before.
Of course, you just I guess going back to the whole discussion around originations and.
Nick you talked about the fact that the technician is just in better shape today than they've been in a while.
As you know a lot of stimulus wage growth will do that but.
I'm just wondering right now to what extent do you think.
The slower origination growth may be attributed to technicians again, because they're better she just qualifying for lower cost per rent it from alternative sources.
We're just going Wow I feel like I haven't.
Tougher time figuring that out I don't think so though because it might be it might be in the U S. I don't think I actually don't think David I don't think stimulus as much of a factor maybe.
Maybe some because you know we have pretty good growth.
In our international operations, where you don't see is clearer.
Pumping up the money into the economy. So when we look at it across the world doesn't seem as though that's specific characteristic of America is a factor.
I don't know, maybe but I tend to think it's more more a combination of the franchisees feel it more flush.
You know you kind of got an interesting interaction half people, who worked first we're leaning towards shorter payback items, and maybe that expands to await from hand to pass.
Past hand tools up into lockers or.
Spiffy your costs for that tool storage boxes, which are more which are more fundable by the franchisees over time franchisees like the building are there they're shorter term credits are they like that and it.
It is true that the technician to do have more cash I mean, they've been working all through the pandemic.
And so that that's kind of built up on a relative cash that could be eligible for other other credit we have no way of knowing that.
I don't hear anybody mention it though.
Now you know like.
I talked to a lot of franchisees and they may not necessarily mentioned, but we haven't heard we haven't heard that particular things come up in any environment.
So I don't know.
Yeah.
Right now I guess, we'll watch and see where it goes Oh yeah.
You talked about you talked about strength in storage, which I guess is surprising to hear in certain restrictions counterintuitive given it's hard to think of another product you sell that you'd be more carbon steel in Kansas.
Hum.
Cold rolled steel mountain in $2000 per ton this week.
It's been an offline inflation, which I'm assuming you pass through so just just no 1 elasticities.
George or Paul.
George sales kind of flattened.
Bonds amongst new product introductions.
Yeah, no. It was a strong quarter in storage I think somewhat.
I think our offerings are kind of stickier than they had been you know I talked about this this this extra why that 72 and ship Master series in the end the call with a lighter top.
Those things are statement makers, and garages, and I think that having refrained from some of this for a period of time.
Technicians are getting more anxious to buy them and they have the money and they're getting a little more confidence. So they go out and look at that's really I think I think that's the situation.
I wouldn't say, there's no elasticity, but I think you know when you I mean is there elasticity with new cars. I mean, the thing is people are buying new cars range guidance a lot of them. So I think when people want something in this category, which is I I have often said I think you're right had conversations that a tool storage box like Scott.
So people tend to want them.
I don't know, if they'll pay a little bit more and its not no elasticity, but people.
Well.
We'll go up and pay for them. That's my that's my analysis, it's really the psychology and the need a combination of need in psychology, and our biggest cycle what day. The product we have which is the biggest psychological factor and people buying it is true storage.
Well I can tell you is our tools storage by tool storage plant is sold out.
Sold out.
I think that's fantastic group I guess.
You're talking about there.
Growth in storage.
Much of that growth was from some of these new products are just moving from legacy product group.
Well look I don't think I think when I say.
I don't I don't know I don't have that number at my fingertips, but there's a lot of wrinkles you can put it into a storage you know like we wouldn't necessarily ball a new color a new product on the other hand give you rollout a new color I remember when we rolled out purpose there was an explosion.
So some of that happens you know it just has to do with the wrinkle that makes it Oh. This is the best box in the shop.
Or is the newest thing that that's really what happens so we're constantly doing that stuff.
I just wanted to wrap up with 1 last question I guess, you know you kind of touched on this earlier in the conversation. So maybe I'll ask the question slightly different way, but.
I'm just thinking about the tools segment growth sort of going forward and you know prior to the pandemic tools, we're struggling with growth for extended period of time.
Can you kind of ensure that 4% growth.
For the segment.
No.
Through the last 4 quarters.
The compares are behind you, but you delivered remarkable growth through that period of time.
Moving on a 2 year basis just to be fair.
I guess, you can think about the growth potential from the business now.
Comparative behind you.
Hum.
Why did you choose to support from sort of growth going forward and what gives you confidence that.
Cyclical.
Tracks, where was it greater than 4% when we're having okay.
I'd tell you. It's this way it's simple statement.
It out new ways to expand the selling efficiency.
I'll take the franchisees.
This has happened before there's a precedent for this if you go back and you look before that term. What you told me you know you said that they struggled for growth initiatives a fair characterization in some ways.
11, and 16, a compounded annual growth rate was 7.2%.
And that was fueled by the expansion of our capabilities. We found artificial forget that the vans the racquetball catheter line and in this case, we believe we've broken through another ceiling to a new level and its probable by the absolute amounts that are flowing through the vans at this point.
So that's certainly true for us and so we keep we've always said keep pounding that and we can sell more we're not we're not found by the market.
We're bound by our ability to sell.
And so that's part of it that's part of getting those franchisees to be able to deal with these more complex products and we think we've made a step change over the last now we've been investing in it for like 3 years or something you know trying to get that but we think we've done it and we think this is this is probable by the absolute amounts whatever the source of debt of that of that volume is it.
Proves that the France, the franchisees can accommodate they couldn't before.
Thank you. Our final question comes from came from Sofia with Yankee and research.
Hey, good morning, everyone.
Good day.
Most of the questions have been answered, but I guess I just wanted to pick up on some of the things. The last questioner was asking as it relates to margins.
It looks like.
Tools C&I margins from Q2, 19, and extended fairly significantly, particularly the tools group.
I mean is there anything that's inherently change in the business or is that just a function of that's just the leverage of the business.
The sales growth.
Look I think I think there is leverage.
In that situation. So that's good I think it would be a mistake to overlook the idea that and get it in there is some pricing to offset you know we've got a whole bunch of it we've got material cost in there I don't want to get into the documented but we've got a great dollop of material cost that everybody anybody who's reading the press sees that the varying levels of steel we use.
From from steel Rod to plate steel sheet steel and so on have gone up tremendously, but the cost of freight or up tremendously yet to pricing and RCI, we shoved them aside.
Mhm and got the 'twenty. So so yes, just leverage but there's also great RCI in there.
Dealing with the material cost.
As you know that's what they think about so you've got a combination of those and you have some other costs in there I think you know we will talk to that I think you'll see some of them are you seeing that killed, but I do think it's a combination of those working very well.
21.4, I think might be the highest we've ever seen in it tools with I don't know, but we kind of hope to get the highest every quarter actually so I don't I don't like to say that but we're pretty pleased with that.
Okay. Thank you.
Sure.
Thank you. This concludes today's question and answer session I would like to now turn the backdrop, it's interest for any closing remarks.
Thank you all for joining us today, a replay of this call will be available shortly on our staff on dot com.
We appreciate your interest in cash.
Okay.
Thank you ladies and gentlemen. This concludes today's presentation you may now disconnect.
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