Q4 2021 Snap-On Inc Earnings Call

February 3, 2022

[music].

Good day and welcome to the snap on incorporated 2021 fourth quarter and full year results conference call.

Today's conference is being recorded.

At this time I would like to turn the conference over to MS. Sarah verb ski Vice President of Investor Relations. Please go ahead.

Thank you Christina and good morning, everyone.

You for joining us today to review snap on fourth quarter and full year results, which are detailed in our press release issued earlier. This morning, we have on the call today, Nick Pinchuk Snap ons, Chief Executive Officer, and Aldo, probably Ari snap ons Chief Financial Officer.

Nick will kick off our call. This morning with his perspective on our performance Aldo will then provide a more detailed review of our financial results.

After Nick provides some closing thoughts we'll take your questions.

As usual we've provided slides to supplement our discussion these slides can be accessed under the downloads tab in the webcast viewer as well as on our website snap on dot com 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 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 our forward looking statements are contained in our SEC filings.

Finally, 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 regarding those measures is included in our earnings release issued today, which 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.

Well I'll start with a view of our fourth quarter give you an update on the environment and the trends we see.

I'll take you through some of the turbulence, we've overcome and the advancements we've made in aldol than as usual give you a more detailed review of the financials.

The fourth quarter was encouraging.

It affirmed the characteristics that make snap on the company, we know what could be the resilience of our markets the power of our strategic position and the consistent and capable execution of our teams.

It all added up to momentum cutting through the challenges and the numbers testify to adjust that.

Our reported sales in the quarter of 1 billion $108 3 million were up three 2%, including $12 2 million for acquisitions being offset by 3 million of unfavorable foreign currency exchange organically.

Organically our sales grew by two 3% importantly, if you compare to the pre pandemic levels of 2019 before the period to period variability of last year.

You see a clear and unmistakable upward drive.

Versus 2019 sales in this past quarter were up 16% as reported and 13% organically continuing and.

The ongoing trend of accelerating expansion, increasing higher and higher.

Pre COVID-19 levels.

We're also bears the marks of the snap on value creation processes safety quality customer connection innovation and rapid continuous improvement or RCI as we call. It all combining to offer significant progress.

Yes that was Opco operating income of $232 2 million was up 16 point $16 million from last year and the Oi margin.

It was 21% an all time high up 90 basis points from last year, and 310 basis points from 2019 all achieved.

By overcoming the challenges of this day.

For financial services operating income of $67 2 million was down from the $68 5 million of last year, but delinquencies in the quarter were below both 2020 and those of 2019 and.

And ongoing Testament to our unique business model and its ability to navigate through the most threatening of environments.

And the combatant in the combination of the results from Opco on financial services offered in overall consolidated operating margin of 25, 1% up from the 24, 4% of last year and a 22, 5% recorded in 2019.

Our quarterly EPS.

It was $4.10 well over the 382 of a year ago, which included a <unk> <unk> charge for restructuring and that $4.10 was up 33, 1% over 2019.

Considerable game in my book.

Well those are the numbers now.

Now, let's speak about the markets, we do believe the auto repair environment continues to be favorable.

In the area, serving vehicle Oems and dealerships, we do see some turbulence new car sales around the world remain mixed with China, generally progressing, but both North America, and Europe , Europe , having a tough fourth quarter.

Overall volume remain below the 2019 levels and some new model releases and features were delayed by supply chain constraints and that impacted the associated essential tool programs that we're involved in.

OEM projects aside however.

The ship repair maintenance and warranty are all healthy techs, we're seeing good times and the dealers are looking to support their expansion in their shop and affect the OEM market is mixed with technicians are quite positive, there's a growing appetite repair shop equipment, but essential tool programs are attenuated.

Now in the independent repair shop is a horse of a different color competence is uniformly sky high based on what we hear from our franchisees shop owners and technicians optimism in independent repair shops continues to be strong and our sales in that sector.

They reflect that copper so we believe on balance vehicle repair is a great place to operate for our tools group and for our repair systems and information or our Tonight group.

So the critical industries, where our commercial industrial group.

Group play or C&I plays.

We are seeing areas of progress with the lingering effects of the virus have created headwinds in the results in the quarter shows that trend with variations from country to country.

Covering Asia, and emerging markets, but Europe being quite mixed.

Also differences from sector to sector education natural resources in general industry, showing improvement, while our military spending continues to experience.

What I'd say is substantial challenges.

Overall, however, I would describe our C&I markets is holding their own against the turbulence.

Variation.

We do believe we're well positioned and I think the number of stages to confront the challenges of this time advancing along poised for growth. We're also confident that we have continuing potential on our runways for improvement the snap on value creation processes, they're a constant fuel for our progress, especially customer connection understanding the work of preferred.

Technicians and innovation matching that insight to technology, we believe our product lineup just keeps getting stronger every day and we keep investing to make it. So vehicles are rising and complexity technicians need assistance and so products are becoming more sophisticated to match the changing requirements and.

Snap on is keeping pace in 2021, we had more hit $1 million projects than ever before.

We have endeavored to the virus in Europe to maintain our product our brand I've spoken about this before and the virus area, we've endeavored to maintain our products our brands and our people and we believe that continuing commitment has served us well.

Authoring positive results and creating substantial momentum for the days ahead and that momentum is apparent in our in our full year results sales of 4.252 billion up 18, 4%, including an organic increase of 15, 1% compared to last year and a 14 points.

10% organic gain over 2019 strong numbers.

The as reported Opco Oi margin for the year was 20% a new hot up from the 17, 6% in 2020 are exceeding the 19 to 19, 2% of the pre pandemic to 2019.

As reported earnings per share for the year were $14 92.

Up 34% or 28, 3% as adjusted for the nonrecurring restructuring restructuring in 2020, and 21, 7% as adjusted for 2019, all clear signs.

Ongoing moment.

Now to the operator for the operating groups.

Well, let's start with C&I.

Fourth quarter sales of $358 7 million for the group were down $5 7 million, including $4 1 million of unfavorable currency.

2019 sales grew $5 8 million, reflecting primarily acquisition volume and currency impact.

The period saw a recovery in Asia with Indonesia.

And is it in the quarter. We saw we did see recovery in Asia, with Indonesia, India, Japan, South Korea, and China rising.

Europe , and North America were more impacted by the environment and were down slightly in the quarter looking at the sectors nice progress with our position was achieved in our position torque line.

And that progress is what that progress was more than offset by lower critical industry activity.

Attenuated in those critical industries, primarily by lower U S military spending and by supply chain driven constraints and in the custom kitting area.

C&I operating income was $50 1 million down $6 1 million, including $1 2 million of unfavorable currency the gains in Asia and torque were more than offset by the reduced military activity and the industrial kitting constraints as I mentioned, however, specialty torque the specialty torque operation did register continuing progress.

Driven by innovative new products developed through customer connection and observational work great offerings like our our recently released two before our line of three quarter inch.

Drive Breakover torque wrenches.

Capable of this wrenches capable of accurately fastening from 450 to 700 centers 50 pound feet.

It's designed explicitly designed specifically for heavy duty applications tough jobs, such as talking logged out some big trucks. The new unit combines our nor bar on new or recently acquired nor bar industrial torque technology with a robust ratchet designs conditions aren't Elizabethton, Tennessee factory those original light vehicle Ratcheting Mec.

<unk> of our Tennessee plant, where reengineered for for higher attention heavy requirement tumor directly matched to our unique nor bar wakeful, where device, which provides a clear indication that the torque target has been reached ensuring reliable accuracy.

Every time.

The ratchet the.

The ratchet design with our patented fuel hedges is rugged capable of withstanding very high stresses and has it easy easy to read adjustment mechanism that reduces the possibility air and it's virtually maintenance free the new wrench also has a quick release up feature for easy This assembly complex storage and great portability the snap on.

<unk> before are you.

We'd like to say strength accuracy and convenience and as you might expect sales have been strong as the need for precision increases.

Torque products are becoming more prominent.

Snap on is playing an active role in that rise.

C&I mixed results, but significant areas of progress boding well for its future.

Now, let's go onto the tools group.

Sales of $504 8 million up $9 $9 million, including favorable currency and a $7 $9 million organic rise from continued expansion in the U S. A positive that was somewhat attenuated this quarter by low single digit decline in the international networks, but versus 2019 are more comparable base the tools group.

<unk> 21, 5% and it's been up now from pre pandemic levels for six straight quarters and the operating margin was 21, 9% easily one of the highest ever up 300 basis points from last year all despite the ongoing challenges of this date.

We have continued to invest in products brands and people.

And the tools group has used that focus to advantage the expanding and considerable gains when the time before the virus makes that clear.

In the quarter and throughout the year. The tools group results continue to confirm the leadership position of our van network. We believe the franchise franchisees are growing stronger and that's evidenced in the franchisee health metrics, we monitor each period, there on an unmistakable favorable trend and that positivity was was acknowledged by multiple publications all.

Listing snap on as a franchise franchise of choice.

This quarter.

We were once again ranked among the top franchise organizations both in the U S and abroad recognize recognize by the franchise business review, which in its latest ranking for franchisee satisfaction with snap on has the top as a top 50 franchise for the 15th consecutive year. We're also featured at number three among all franchises and entrepreneur Mag.

These 2020 list of top franchises for veterans and abroad snap on was ranked number two in.

Elite franchise magazine's top U K franchises.

The judges in that ranking state.

That the durability and then innovation shown in the face of unimaginable circumstance or what is the size of this year's top 10.

And the panel was right on.

Durability, and interim innovation or what makes the tools group.

Marks the tools group in this storm it's clear.

Type of recognition.

As a point of pride for us, but it reflects the fundamental strength of our franchisees and of our van business in general, but it would not have been achieved without a continuous stream of innovative new products developed through our strong customer connections learning leading to multiple new problem solving.

<unk> and the result of our in the result of our insights in.

In.

In experience in the changing universe of vehicle repair.

Customer connection gives us a great window on that changing universe, and we put it to good use our sales and enhance our sales of hand tools were up nicely in the quarter and of course, new products led the way there are innovative 30 U S. D M cord half inch drive impact sockets were significant contributor born out of customer connection observing the work.

Work in automotive shops, the special sockets, there they range from 17.

To 2017 to 22 millimeters palm with an extra deep picks up to three quarters inch deeper accommodating the lug nuts with decorative caps that are becoming so comment on the latest models the new sockets to provide the clearance needed right over those not published without damage grabbed the love and log in and enable quick removal without having a.

We removed the caps it save significant time or what day of repair activity.

Maybe made right here in our Milwaukee plant there really just this past quarter end.

And initial sales have been gangbusters, I'm, telling you and maybe making those sales have made that new socket line of hip product just in the volume in the fourth quarter.

Accelerated sales well, that's the tools group expanding the success in the U S balancing the international operations continuing to innovate building on our underlying advantage is stronger than ever performance all achieved.

Against the wind.

Now for our C&I.

Volume for the for the fourth quarter was $392 5 million up eight 7%, including acquisitions and five 5% of organic growth with gains in sales of honor car equipment increased volume of handheld diagnostics and the rise of information and data subscriptions being partially offset by a decrease in our business.

Just on the vehicle Oems and dealerships aren't high operating margins of $97 2 million rose $77 2 million or 8% versus 22020 within that number in 2020 included a $1 million of restructuring costs compared with a pre pandemic levels of 2019.

<unk> sales grew $57 5 million 17, 2%, including a $43 7 million or 13% organic gains.

And the the Rsi and grow smart Oi margin of 24, 8% compared with a 24, 9% and a 26% registered in 2020 in 2010, respectively with the impact of acquisitions Attenuating, a generally positive balance for the operations.

Again software products and subscriptions for our F&I, where a significant plus along those lines. Our Mitchell one division providing software to independent shops continues to succeed pursuing customer connection and innovation launching great new products to improve shop efficiency.

Often I just added more powerful and exclusive features to its award winning Mitchell one pro demand auto repair information software.

You see as auto electronics have expanded wiring diagrams have become a rising importance in vehicle diagnostics diagnosis and repair and and the new pro demand significant advances what is already a clear lead for Mitchell one in diagram navigation offering new features that.

Provide interactive dropdowns displayed connection data.

How easy movement to the next diagram on the diagnostic trail and enabled a seamless recall of previous viewed circuits sort of look back do you needed in the repair process.

And as you might expect the initial reactions to the new updates has been quite enthusiastic reaction.

From both the shots and from the technicians.

All music to our years.

We keep driving to expand our size position with repair shop owners and managers offering them more and more solutions for their day to day challenges developed by our value creation processes or added by our strategic input.

Current acquisitions, and we're confident it's a winning formula.

So those are the highlights of the quarter.

Doing what we expect to do.

Achieve ongoing process.

Again.

But I'm going progress against the storm.

Our continuing rise versus the pre pandemic levels up more each quarter now for several straight periods gauged forged through our snap on value creation processes, strengthening our business and driving to a 21% Opco operating margin up 90 basis points.

A new record.

EPS $4.10, a considerable rise to new heights, overcoming all headwinds and demonstrating continued confirmation that snap on has emerged from the pandemic much stronger than when we entered with our with the momentum that we're confident will propel us to even higher price as we move forward.

Now I'll turn the call over to Aldo Aldo.

Our consolidated operating results are summarized on slide six.

During the fourth quarter of 2021, the resilience and continued strength of our business model enabled snap ons. The closed the year with another period of robust financial performance.

We're also compared favorably with the fourth quarter of 2019, which being a pre COVID-19 time period in some cases, maybe serve to be the more meaningful baseline.

Net sales of $1 billion $108 3 million in the quarter increased three 2% from 2020 levels, reflecting a two 3% organic sales gain and a $12 2 million of acquisition related sales, partially offset by $3 million of unfavorable foreign currency translation.

Additionally, net sales in the period increased 16% from $155 $2 million in the fourth quarter of 2019, including a 13% organic gains of $29 million of acquisition related sales and $7 1 million of favorable foreign currency translation.

In both comparisons the organic gains more than offset lower sales to the military.

Consolidated gross margin of 48, 1% improved 10 basis points from 48% last year.

Gross margin contributions from the higher sales volumes and pricing actions 30 basis points of favorable foreign currency effects and benefits from the company's RCI initiatives offset higher material and other costs.

For the quarter. The corporation continued to navigate effectively the supply chain dynamics associated with the global pandemic.

Operating expenses as a percentage of net sales of 27, 1% improved 80 basis points from 27, 9% last year, which included 10 basis points of costs from restructuring actions.

Improvement was primarily due to higher sales volumes, partially offset by 40 basis points of unfavorable acquisition effects.

Operating earnings before financial services of $232 $2 million compared to $216 $2 million in 2020, and $171 $4 million in 2019.

Selecting an improvement of seven 4% and 35, 5% respectively.

As a percentage of net sales operating margin before financial services of 21% improved 90 basis points from last year and 310 basis points from 2019.

The operating company margin of 21% represents the highest quarterly level of profitability and snap ons modern day history.

Financial services revenue of $86 $9 million in the fourth quarter of 2021 compared to $93 $4 million last year, which included an extra week of interest income associated with the 50 <unk> week 2020 fiscal calendar.

Operating earnings of $67 $2 million decreased $1 $3 million from 2020 levels, reflecting the lower revenue, partially offset by lower provisions for credit losses.

Consolidated operating earnings of $299 $4 million increased five 2% from $284 $7 million last year, and 28, 2% from $233 $6 million in 2019.

As a percentage of revenues the operating earnings margin of 25, 1% compared to 24, 4% in 2020 and 22, 5% in 2019.

Our fourth quarter effective income tax rate of 22, 3% compared to 21, 8% last year, which includes a 10 basis point increase related to the restructuring.

Net earnings of $223 $7 million or $4 and cents per diluted share increased $14 $8 million 28 per share from last year's levels, representing a seven 3% increase in diluted earnings per share.

As compared to the fourth quarter of 2019, net earnings increased $53 $1 million or $1 two per share representing a 33, 1% increase in diluted earnings per share.

Now, let's turn to our segment results.

Starting with the C&I group on slide seven.

Sales of $358 $7 million decreased from $364 $4 million last year, reflecting a $1 6 million organic sales decline and $4 1 million of unfavorable foreign currency translation.

Organic decrease primarily reflects a low single digit decline in sales to customers in critical industries within critical industries lower sales to the military were partially offset by gains in general industry and technical education as well as by improved sales into oil and gas.

Applications.

As a further comparison net sales in the period increased one 6% from 2016 levels, reflecting $8 $7 million of acquisition sales and $3 $8 million of favorable foreign currency translation, partially offset by a $6 $7 million organic sales decline.

As compared to 2019 sales in our European based hand tools business were up mid teens.

These gains were more than offset by lower activity with the military.

As you May recall, the fourth quarter of 2019 included sales for a major project that is substantially complete.

Gross margin of 36, 5% declined 130 basis points from 37, 8% in the fourth quarter of 2020, primarily due to the higher material and other costs, partially offset by benefits from RCI initiatives.

While pricing actions have been taken in this segment to help offset the increasing cost the longer term nature of certain customer agreements affects the timing of price realization.

Operating expenses as a percentage of sales was 22, 5% in the quarter compared to 22, 4% last year.

Operating earnings for the C&I segment of $50 $1 million compared to $56 $2 million last year, the operating margin of 14% compared to 15, 4% a year ago.

Turning now to slide eight.

Sales in the snap on tools group of $504 $8 million increased 2% from $494 $9 million in 2020, reflecting a one 6% organic sales gain and $2 million of favorable foreign currency translation.

The organic sales increase reflects a low single digit gain in our U S business, partially offset by a low single digit decline in our international operations.

Net sales in the period increased 22, 6% from $411 7 million in the fourth quarter of 2019, reflecting a 21, 5% organic sales gain of $3 $9 million of favorable foreign currency translation.

Sales gains in the quarter were led by our handfuls category with strong performance sequentially as well as versus both the fourth quarters of 2020 and 2019.

Gross margin of 43, 9% in the quarter improved 100 basis points from last year, primarily due to the higher sales volumes pricing actions and 60 basis points from favorable foreign currency effects, which offset higher material and other costs.

Operating expenses as a percentage of sales of 22% improved from 24% last year, primarily reflecting the higher sales and benefits from ongoing RCI and cost containment efforts.

Operating earnings for the snap on tools group of $110 $5 million compared to $93 $6 million last year. The operating margin of 21, 9% improved 300 basis points from 18, 9% last year.

Turning to the <unk> group shown on slide nine.

Sales of $392 5 million compared to $361 $1 billion, a year ago, reflecting a five 5% organic sales gain and $12 2 million of acquisition related sales, partially offset by $500000 of unfavorable foreign currency translation.

The organic gains comprised of a double digit increase in sales of under car equipment at a mid single digit gain in sales of diagnostic and repair information products to independent shop owners and managers, partially offset by a low single digit decrease in sales to OEM dealerships.

Also during the quarter. The Rsi group continued to benefit from the increasing number of monthly software subscribers towards aftermarket and dealership repair shops.

As compared to 2019 levels net sales increased $57 $5 million from $335 million, reflecting a 13% organic sales gain of $12 2 million of acquisition related sales and $1 $6 million of favorable foreign currency translation.

Gross margin of 46, 1% was unchanged from last year as benefits from pricing actions and 60 basis points from acquisitions were offset by higher material and other costs.

Operating expenses as a percentage of sales was 21, 3% compared to 21, 2% last year, primarily due to a 150 basis points of unfavorable acquisition effects, partially offset by the impact of higher sales and 30 basis points from lower expenses related to $1 million of restructuring costs that were recorded in the fourth quarter of 2000.

Yeah.

Operating earnings for the <unk> group of $97 2 million compared to $90 million last year. The operating margin of 24, 8% compared to 24, 9% a year ago.

Now turning to slide 10.

Revenue from financial services of $86 $9 million decreased $6 5 million from $93 four last year, primarily as a result of an additional week of interest income occurring in the 50, <unk> 2020 fiscal year.

<unk> services operating earnings of $67 2 million compared to $68 5 million in 2020.

Financial services expenses of $19 7 million were down $5 $2 million from 2020 levels, primarily due to $5 6 million a decrease in provisions for credit losses, resulting from favorable loan portfolio trends, including reduced year over year net charge offs, which support lower forward looking estimated reserve.

Acquirements.

As a percentage of the average portfolio financial services expenses were nine tenths of 1% at one 1% in the fourth quarters of 2021 and 2020, respectively.

And the fourth quarters of both 2021 and 2020 the average yield on finance receivables was 17, 7%.

Average yield on contract receivables was eight 5%.

Total loan originations of $256 $3 million in the fourth quarter decreased $16 1 million or five 9% from 2020 levels, reflecting a three 6% decrease in originations of finance receivables and a 16, 6% decrease in originations of contract receivables lag.

Last year's extra week in the quarter contributed approximately $10 million of finance receivable originations as a reminder, revenues in the quarter are generally dependent on the average size of the financing portfolio rather than originations at any one period.

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.

The 60 day, plus delinquency rate of one 6% for U S extended credit compared to one 8% in the fourth quarter of 2020.

Sequential basis, the rate is up 20 basis points, reflecting the typical seasonal increase we experienced between the third and fourth quarters.

As it relates to extended credit or finance receivables trailing 12 month net losses of $41 1 million represented 238% of Outstandings at quarter end down 24 basis points as compared to the same period last year.

Now turning to slide 12.

Cash provided by operating activities of $222 $7 million in the quarter reflects 97, 2% of net earnings and compared to $317 $6 million last year.

The decrease from the fourth quarter of 2020, primarily reflects higher cash payments for income and other taxes and $85 million increase in working investment partially offset by higher net earnings.

Change in working investment is largely driven by increased receivables and higher levels of inventory this year versus a reduction of inventory in 2020.

The increase in inventory, primarily reflects higher demand as well as incremental buffer stocks and expanded levels of in transit inventories associated with the supply chain dynamics in the current macro environment.

Net cash used by investing activities of $43 8 million included net additions to finance receivables of $9 7 million $16 $3 million of capital expenditures.

Net cash used by financing activities of $154 1 million.

<unk> cash dividends of $76 1 million and the repurchase of 355000 shares of common stock for $75 $5 million under our existing share repurchase programs.

As of year end, we had remaining availability to repurchase up to an additional $454 9 million of common stock under existing authorizations.

The 2021 full year free cash flow generation of $872 $6 million represented about 104% of net earnings.

Turning to slide 13.

Trade and other accounts receivable increased $41 6 million from 2020 year end.

Days sales outstanding of 58 days compared to 64 days at 2020 year end.

Inventories increased $57 3 million from 2020 year and on a trailing 12 month basis inventory turns of two eight times compared to two four times at year end 2020.

Our year end cash position of $780 million compared to $923 4 million at year end 2020, our net debt to capital ratio of nine 1% compared to 12, 1% at year end 2020.

In addition to cash and expected cash flow from operations, we have more than $800 million available under our credit facilities as of year end. There were no amounts outstanding under the credit facility and there were no commercial paper borrowings outstanding.

That concludes my remarks on our fourth quarter performance I'll now briefly review a few outlook items for 2022.

We anticipate that capital expenditures will be in a range of $90 million to $100 million.

In addition, we currently anticipate absent any changes to the U S tax legislation that our full year 2022 effective income tax rate will be in a range of 23% to 24%.

I'll now turn the call back to Nick for his closing thoughts Nick.

Thanks Aldo.

Well, that's our fourth quarter.

Positive performance overcoming challenges.

As we expect to do.

In these times of turbulent we continued to rise based on the resilience of our market vehicle repair.

Spanning at the shop level Tech pumped in garages optimistic overcoming the postponement of essential OEM programs critical industries mixed with the profitable, but with promising areas gains in general industry natural resources and education and progress in emerging markets.

Difficulties or in the air, but we were able to prosper Nonetheless on a power of our strategic position controlling the customer interface with our wide product line and unique brands and perhaps most importantly.

We rose on the consistent and capable execution by our team employing agile marketing considered inactive pricing, new and higher value products quick redesign to match available materials aggressive stock spot buying and as always our ongoing RCI.

It's a combination authored another positive performance and it's all spelled out clearly in our numbers sales rising organically over pre pandemic levels by 13% with the last four periods up organically, 8%, 9%, 11% and 13% expanding the gain over 2019 demonstrating.

Positive second derivative and the rising sales quarter by quarter.

Opco Oi margins of 21% a record high in the midst of multiple challenges up 90 basis points from last year and up substantially more from 2019 and it will.

All came together for an EPS of $4 10 up seven 3% from last year and 33% from the pre pandemic period, leading to a full year EPS of $14 90 to new Heights.

Despite the storm.

It was an encouraging quarter and the year.

The period, clearly had challenges, but we were able to overcome maintaining our progress extending our upward trend and we believe that snap on exits 2021 with a substantial momentum that will carry us forward and as we mine the abundant opportunities of our resilient markets, we'll the advantages of our unique strategic.

Position.

And engage the considerable capabilities of our challenge tested team will continue to track progress throughout 2022 and well beyond.

Now before I turn the call over to the operator.

I'll speak directly to our franchisees and associates many of them are listening to this call.

My friends.

You have the base of the success we've registered this quarter in this year.

For the extraordinary progress you achieved you have my congratulations.

For the unique individual and collective capabilities you brought to bear against the challenges you have my admiration.

And for the commitment you bring two are now in the conviction you hold in our future.

You have my thanks.

Now I'll turn the call over to the operator operator.

If you would like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment again press star one to ask a question.

We will take our first question from Scott <unk> with C. L King.

Hi, Good morning, guys and thanks for taking my questions.

Hey, Scott.

Today I'll frame things out obviously is the comparisons getting more difficult can you maybe talk about in the tools group.

In the U S.

On a two year stack and maybe also further flesh it out by tools and some of the other segments.

Well look I think the tools group is demonstrating itself I mean, if you look at the pre pandemic levels. It's been up now six straight quarters and it was up over 21% in this quarter I think it was 21, 5%. So it seems to be moving upwards in all of our good power.

This time of turbulence the tools group is really well positioned when I say, our strategic advantage of being with with wide product line and unique brand to control the interface with the end customer and that's exactly what the tools group does in spades.

It's able to place, it's able to bring value new value products that don't look like price increases because people are paying for four or more features and so that's a that's a very strong position. They have also they can market annually. So if you have supply chain problems.

They can they can pitch their promotions to move people towards what we have a lot of and have weighed somewhat some things we have less of the same time, they are working pretty well in the factories, because they're they're vertically integrated so you see there kind of numbers of 21, 9% I think we were very encouraged by when we saw and so you see the tools group.

Well in sales in terms of profitability and if you look back to 2019. What's happened is I think I've said before is that we have to figure it out.

Over the period, we were investing in SG&A and in say like 18, and 19 to try to figure out how to how do we expand the tools group's selling capability.

And it seems to have worked our selling capability of our franchisees has gone up each quarter over that you can see the expansion second derivative looks pretty good for us so.

So youre seeing that play out what we're doing now is we're of course plumbing the ceiling of that to see how far it would take us and where we're investing and looking at other possibilities to keep that string going we think is we don't know how far those things we understood in terms of social media in terms of in terms of being able to train more effectively will bring us, but we're pretty optimistic about.

And I thought I was pretty clear about our views about momentum going forward. In this period. If you look at <unk> start to come back I mean, the thing is it's had.

It had some good quarters, but.

Some quarters, where the margins were down but this quarter 23, 8% down 10 basis points and that's against multiple decade, much more like 80 or 90 basis points of acquisition impact.

What you see in our Tonight is a girl is continuing positivity around the independent repair shops, particularly diagnostics and information products and the rise of subscriptions and software keeps ticking up because we keep emphasizing that particularly things like the innovation you've heard about you heard about Mitchell in terms of navigating the.

Irene diagrams and the car that's a big deal.

Kinds of situations. So you see that playing out our side I think they were up five 5% organically in the quarter and up 13% versus last year and up 13% versus pre pandemic levels. Another very positive quarter C&I is more vulnerable to the turbulence of the day each because because you have a lot of mixed markets.

And a lot of sectors a lot of countries and in that talk Dale you see some countries that are down, particularly in Europe in this quarter, which was difficult for you and then C&I in some of their business as I did say the customized toolkits well.

Customized toolkits are great just great margins on them blocks, but you have in those kids, sometimes couple hundred tools and the sourcing situations that today. When you are going to deliver those all many of them from individual sources, you can get disruptive in terms of when youre going to be able to deliver and create some problems and then on top of it for C&I.

Big piece in the critical industries. The military business is pretty weak, we always we expect that to come back and we expect C&I to come forward, but we see tools group gangbusters, we see our C&I coming back coming back from you know they've been they havent been weak, but they're getting better their heating up you can see that number and you see you see C&I kind of holding us.

All of them kind of flat sales, but we figure as as we get better at managing this situation. We have a challenge tested team that does pretty well in that C&I is going to keep coming back. So we like our momentum going forward.

Got it and just last question. This is through the first quarter of that we've.

<unk> heard about meeting or any.

Quasi meaningful impact from supply chain can you maybe talk about that.

Any further mitigation efforts that you guys can put through whether it's RCI or anything else.

Wow.

Let me just say, though I didn't say I said when I when I when I bought a burrow.

Burrow down on Arps, and on C&I I mentioned supply chain.

But our view of this is it's always something.

It's always something and if you look at our numbers up what 15%, 13% over pre pandemic levels.

1% Oi margin.

I don't know if you look at the numbers you can see any turbulence in those numbers.

So I think we're managing through it yes of course, it will get better as we go forward I mean, its hard for me to predict but as you as you get into in a moment you get better at managing it right now we're pretty good agile marketing we're good at managing of redesigning our products. We're good at spot buying so we don't get disrupted in general we have certain.

Nodules of disruption that we'll figure out and we'll solve but you don't really get that kind of kind of problem Gulfport now some of our businesses.

Like for example, you can look at tool storage, we could we could sell more tool storage. If we can if we can turn some more out and we're working on that so you may see some of that going forward, but I don't accept the idea that we're being impacted by this we're dealing with it I think the numbers say that was a good quarter, whether we thought we had turbulence or not.

Okay.

Got it thanks again Thats all I have.

Yeah.

And we will take our next question from Bret Jordan with Jefferies.

Hey, good morning, guys.

You called out I guess some of the pricing contracts.

C&I as obviously costs of everything I've gone up versus the prices you received could you talk maybe about the magnitude and the timing of some of the pricing resets that you have coming forward.

Yeah.

They're all over the map in terms of that situation and thereby there by segment, but look you know C&I as I just point there was C&I is a longer wave business.

So you have you have commitments with some customers not all customers. So you'll see some impact on that and you price associated with that were getting some pricing in C&I, some but not not as much as not as not other things are big thing isn't so much about pricing, it's managing those costs and so the idea of C&I I think our disruption.

Is mostly associated with what I pointed out in terms of the custom the custom kitting situation trying to deliver those things. So that's been more probably the biggest impact on this attenuating some of their volumes, particularly in critical industries.

Okay, Great and then within the OE business was there any improvement in cadence as we got through the quarter I mean, obviously some of the Oes on the auto side are talking about some improvement in supply chain, but did you see any change in their buying patterns as the quarter progressed.

Kidding there their fourth quarter was terrible wasn't it I thought I thought the fourth quarter for those guys was brutal so we didn't see much they're talking about projects. We didn't see much cadence difference I mean actually theres a lot of there's a lot of new models coming out that are going to come out new features and I don't think.

We saw any cadence change in the quarter now I'm on shaky ground, a little bit about saying that there might have been some of it but I know my macro view of it Brad is that was a tough quarter for the auto companies. So I think I think as we go forward, it's got to get better they're going to shake loose some of those and so we're going to get because we're already involved in some of those products. We were just.

Waiting for them to come out that's that's what I see I think I think the if you look at the dealerships. If you go like I thought I tried to make clear at the dealership level. The repair is great at that situation. So we are seeing dealerships buy equipment and one is one of the uptick center. We didn't I don't think I mentioned it here, but one of the upticks in the arsenide businesses. It's arrived.

This rise in repair and repair shop under car equipment.

And then the balances and changes in those kinds of things and so that's been going up also they are buying software from us. So so that's pretty good in that situation, but if you're talking about the programs out of the Oems Youre guess is as good as mine when that breaks loose. All we know is they've got a backlog in there that's going to be good for us when it breaks.

Okay, Great and then one final question I guess, you called out hand tools as strong in the tools group a couple of times did you say, what the spread was sort of hand tools relative to storage and diagnostics.

I did not.

Watson and the reason it is and the rig.

I Wanna get away from talking about the the numbers by product line in the tools group to us it doesn't matter, we skinned the cat many ways. So the point about the tools group is 21, 9% margin now handles we're a nice piece of that but you know I will tell you the big ticket items were also.

Up in that period.

The tool storage and diagnostics were up the hand tools are are are sort of the flavor of the day. These days because of course, we're more vertically integrated fundamentally when the handheld comes in the door. All we had a steel capital and labor bone. So it wasn't it was but it's been it's been strong for a number.

A different period, a number of different periods. So I don't really want to get down that road, just sate and hand tools was a nice product.

And a nice a nice but as what's diagnostics in the period and we had increases in tool storage as well okay. Great. Thank you.

Sure.

And we will take our next question from Luke junk with Baird.

Hey, good morning, Thanks for taking the questions.

Sure.

First question I wanted to ask a follow up on something that you've mentioned a couple of.

Callers ago, and Thats regarding the investments spending posture as we begin 2002 or maybe even more broadly as we go through the next few years at this stage of the cycle you've been steadfast about maintaining the rate of investment in the tools group in particular and you referenced plumbing the depths of these capacity creation initiatives from here just wondering if you're able to talk about.

With any new focus areas or within the capacity creation initiatives, where we might see the company pushed a little incrementally in 2020, well look I think I think I think this you know we have of course, we're taking a look at where how we source and where we need more capacity in our factories and those kinds of things you know, but I don't see it.

I don't see it distorting our financials in that regard I think you know it is.

A couple of things when I said that I didn't mean that the OE was going to explode or anything like that fundamentally our OE was higher before because we were spending a lot of effort and a lot of different.

The corridor is trying to figure out what would actually resonate with the tools group and make a difference.

Are always in a nice place now you know and of course as you come out you know how you say that youre kind of loosen in your belt a little bit.

When you've had a downtick in the in the in the in the in the Covid, but I think our <unk> is at a nice level. It may go up a little bit, but not not not that much you know why not.

But the areas, where we're going to spend I think would be you know we're going to push more on social media because we've learned more about that boy you know what we've got a lot of data on our franchisees.

Franchisees and our customers, we got oodles of data and we could do a better job in terms of predictive behavior on those things. So we're spending time looking at that right now I don't have anything to report other than that boy, it's obvious to US we have Mitchell type sure track data, which we have about cars we have.

Of that about our customers.

And so we think we'll be able to wield that to make the tools group even more effective so our guys can make better choices when they when they engage customers that's probably another area. We're looking at right now.

Okay, and then I wanted to ask a bigger picture question is a follow up thank you for that.

Dealer FX, we're approaching.

Pushing the one year anniversary of that acquisition I don't know if you could speak to progress in year, one under the company's ownership and looking forward more importantly should we expect to hear more about this business in the future as competencies complementary software platform sitting alongside Mitchell one in that dealership environment. Thank you.

Sure I mean look I think that's why we bought it for two reasons one from a financial point of view. It is a twin of Mitchell, one and I don't know if you're familiar with Mitchell one, but if you pay you know I know you are we've been paying we've been talking about the growth of our diagnostics and software and independent repair shop.

Almost every quarter since I've been here and they just keep going upwards boom boom boom.

And so so Mitchell one knows how to handle that interface and so we're using that that knowledge that I would say challenge tested understanding of the business to apply to dealer FX in <unk> and in.

In the fullness of time, that's going to work its management magic. There we believe we'll have a.

Kind of a twin I'm, not saying, it's going to be as great as Mitchell one it may be but it's going to be a good business. So you're going to see it from a financial point of view, but it's also important from us strategically because as you know as as you know it has a window on what happens with these new technologies and the new technology is going to be the drivers of the future and it is going to call. It help us call in the air strikes.

Well what product, we develop because we're going to see it first and dealer FX, so you're going to hear us talking about that but as you know these are early days. It's the first year you know there's a lot of turbulence. These.

These kinds of things in terms of Canada, I think Justin Trudeau just got this.

Got the Covid himself. So this impacts the activity in Canada, but I believe it.

Certainly dealer effects was up in the quarter and were making and were sort of making.

Our our expectations in this but you'll hear more of it as we go forward because it's going to be a big factor on us in terms of early warning also financially.

Okay, great well I appreciate it though it's still early days there.

Great color and I'll leave it there thank you.

Okay sure.

Thank you. Our next question from Liz Suzuki with Bank of America.

Great. Thank you. So this one is a it's sort of it although I guess could you just talk about the inflation impact that you expect through the course of the year and how the cadence of that could work out with the dynamic of cost and price.

And how that would impact the P&L.

So certainly of course, everybody is talking more about inflation, but then in the past.

Snap on was not immune from that however.

I think it's just something we manage and strive first we always look for alternative ways to reduce costs, whether that be alternative sourcing alternative componentry rapid continuous improvement to get some productivity and of course, if we can't cover that then we look for pricing actions to help us out and we do believe we have pricing power personified by.

The tools group and then as Nick already has said, we get pricing over time, and the commercial industrial group and our repair systems and information in light of the fact that they have longer term customer agreements. So we don't immediately just put pen to paper and say Oh, it's got to be this pricing, we try and strive to see what we can offset internally at the same time, we're cognizant of the new <unk>.

Features we always bring to market, so rather than bring a price increase to market. Our preferences can we bring a higher featured product to market and talk more about that feature even though it might cost more to the customer we try to create that that vision.

There's more productivity being brought to market. So that's kind of a broad based approach. So yeah, there's more inflation, but we will continue to try to bring more innovation and more value added for the customer.

As I put in perspective lives just I'd add on that you know if you just look at our hit products. We bring a couple three dozen new products every quarter to the market.

So that's a big factor for us.

Great. Thank you and I guess, a second question is just on priorities for capital I mean, your net debt to capital ratio came down about three percentage points since last year that are historically low level.

What are you thinking about for this upcoming year and beyond in terms of where your priorities lie.

Well look I think our priorities are still in line.

I think we believe the best return on capital for our people for our for our investors.

And for our constituents is investing in our business. So to the extent, we can invested in business and some of these new new activities or anything like that we will we support that.

Secondly, we have a pretty full.

I would say pipeline of acquisitions that we keep looking at and I kind of think.

Call Me Crazy, but I think in the turbulence of the acquisitions made me more available in a situation. So we're kind of hoping that you know.

We're kind of focusing on a few things that we may have some ability to move and we're not afraid to take big ones. There are small ones.

And that situation and then we have our our board just.

Reloaded, our share buyback situation I think now and another $500 million in and and you know we have our dividend, which we.

We look at and we're kind of I think it's been a kind of a practice piece for for snap on where we have paid a dividend every quarter for since 1939, and we've never reduced it. So we hold it in perpetuity in terms of our policy and we always look to see if it's appropriate to upgrade it. So those are the kinds of things we're looking at I think.

Every year changes and this year, it's marked by the idea of there's a lot of turbulence out there maybe there's some opportunities for it.

Great. Thanks, that's very helpful.

Yeah.

And we'll go to our next question from David Macgregor with Longbow Research.

Yes, good morning, everyone.

That's encouraging.

It's encouraging to hear you are leaning a little more into the data analytics. So I think that has the potential to move the needle so congratulations on that initiatives.

I guess to start off with what do you think sales off the truck were up year over year.

I think about the same I think roughly the same as the as the as the as the.

Tools group I would say in the same ballpark in fact, if you look over David If you look over two years' worth.

Now there are differences from quarter to from.

From quarter to quarter, but if you look back over two years they've been about the same.

Like we generally sees in this quarter was the same kind of ease a little bit of noise with the with the 50 <unk> week in the in the in the in the in the franchisees probably.

Doing a little more than they would order from us, but I think generally it's roughly the same there in practically lockstep. So we see the inventories you know kind of on the tools group holding pretty flat.

Got it.

And then just still on the tools group you talked about the 300 basis points of operating margin improvement of about 200 basis points of that came out of SG&A and 60 basis points was FX, so clearly fuels.

The price cost pressures that everybody else in the world seems to be feeling or are coming home to roost at snap on as well.

Do you think just.

In closing I think holding gross margins.

Or is it is a.

It's a common occurrence in this environment.

I'm just trying to get a kind of I'm, just trying to get at kind of the price cost.

Sure.

I think look I think yes, we have we have pressures on you know a lot of different things. There's a lot of things that go in that gross margin and there are a lot of things that go in the SG&A you know I think our view was on the Oi margin in general.

The up to 300 basis points, we I think I've said this on other calls long ago that we're kind of agnostic between those two numbers.

We kind of focus on the Oi margin.

Up 300 basis points not bad now you could say, okay, well you know the gross margin is up less than the than than the than the OE, but if you look back to pre pandemic levels are up both up reasonably well I think a 100 basis points 200 basis points and I don't think that's a chop liver in this environment.

Yes, there are there are pressures associated with with the with the supply end and and sourcing, but we're able to manage it such that we don't give up anything.

So I guess my question on this is really just as you look forward to 2022, Nick you talked about is the opportunity to raise your referenced the opportunity to raise pricing within the tools segment, but also to bring better margin products, a better incremental margin products to the marketplace.

Cover your costs.

The productivity that way.

Can you give us a sense on how youre thinking about the split between those two opportunities do you think you'll be leaning a little more onto the pricing side and then supplementing that with a better margin product are you leaning a little more towards the better margin product and supplementing that with pricing.

Generally I think of it I think it was the latter I think I I think that we would we would rather have it with our new products and then be bullish around those but I think it isn't isn't itself. So bald-faced I mean fundamentally I just want to come back to your original question it would be a mistake.

Think that the cost werent coursing through our numbers this quarter.

Because they are.

And so we have those in and we're holding our own against those with pricing and with those you know like I said people I think sometimes people don't realize how many new products that we bring out I mean, if you just look at the hit products in there and they are the ones that are the incandescent one's a million dollars in the first year we have.

Two to three dozen every quarter.

And so so we have a lot of opportunity in both of those both those areas and I think that's what allows us to maintain this and you know the saying our first rodeo. So we know we know how to manage this I think our team not me I mean, I'm just trained dog at the top of the heap here, but the thing is the the the guy.

As you know how to manage it as such they can bring with with a combination of direct pricing plus plus promotions.

Plus the new the new products. They can manage that interface very well, that's what I meant about the strategic position. So we're not we're not running our hands at all David.

Great. Okay, well, thanks for that offer a that answer I guess I wanted to also ask about the originations down 6%.

And then also the yields coming down a little bit on the portfolio as well or are you just seeing changes in patterns in terms of how new tech new techs are using credit or how much of this is maybe just substitution already credit youre, just losing share to your franchisees on the credit front or and how much it might just be alternative sources of credit as some others have talked about.

Don't think I don't think you know I was just with the franchisees at the kickoff in Omaha, Yeah, I got to go to Omaha Allopathic go to Orlando you can figure that one out in January but I was with the with the group.

We don't think we're losing share to other alternative sources. They just think look these guys are flush.

So they're willing to pay I mean, if you looked at the numbers the BLS data says that.

Investment in repair are up double digits on a year over year basis in both nominal and real basis, and and the and the technician.

Technician wages are up a technician wages were up over 5% year over year and in the number of technicians out there are growing so I think you see this kind of a growing flush group of people and they're real they're not they're not they're.

They are staying with <unk>, they don't want to pay the interest we like we think it's great because fundamentally the guys have that capacity available when they need it. The other factor is I think in this is that I never wanted to say this I said it wouldn't last time, but if you look at the 50 <unk> week last year.

Generally.

Art stuff cuts off but even if the franchisees go out for a day or two or three they're going to generate more year over year originations because it happens in the field at some point I don't know how much that accounts for but you could you could knock down some of that so I don't think that's an unusual situation.

And then the credit origination is down 66.

Can you talk a little bit about what might've been happening here.

Hello.

Although I would say if you take into account $10 million that I mentioned that that extra week alone, we would've probably been up slightly I would say in the U S environment down a little bit International International is not quite as robust as the U S. I think we mentioned that as well, but we were up in the U S. In terms of our sales versus international and then.

If you look at the.

Given the contract originations in 2020, we had more new startups, so there's a little bit more stable environment now where the franchisees are there was less startups in the international Arena in particular, and when you start up franchise, David many of the franchisees tend to like police vans and borrow from snap on credit so.

That could effect right.

So its really I don't want to just dismiss it and I always try to remind people that youre still not completely certain environment that we find over at the time of history.

People tend to buy at a lower price point items until certainty restores. So all the tool storage has been as robust as you see in the.

Our revolving credit accounts, and therefore, you see more revolving our actions on the animal side.

That makes sense last question for me is just with respect to the share repurchase activity.

You talked about the fact that you just had a another authorization from the board.

Okay.

In the fourth quarter really didn't change much year over year.

About 75 million a good number for the full year by the way good activity there, but how.

How do we think about share repurchase here why wouldn't you step up and just get a lot more aggressive here in terms of buying back your stock at these levels.

Well, we always think of things like that but if you look at the total of time averages between two and 3% of the outstanding share count more or less and it's hard to be an expert in this market you know I have no idea.

Advertising revenues of Facebook will impact snap on in the next day, when I get up and things of that nature of them being extreme in that example, but we.

We tried to take a measured approach to it has its role it's not the only solution in terms of how to use cash.

Okay. Thanks, very much Jim.

David.

That concludes today's question and answer session Ms verb ski at this time I will turn the conference back to you for any additional or closing remarks.

Thank you all for joining us today, a replay of this call will be available shortly and snap on dot com as always we appreciate your interest in snap on good day.

This concludes today's call. Thank you for your participation you may now disconnect.

[music].

Yeah.

[music].

Good day and welcome to the snap on incorporated 2021 fourth quarter and full year results conference call.

Today's conference is being recorded.

At this time I would like to turn the conference over to MS. Sarah verbs ski Vice President of Investor Relations. Please go ahead.

Thank you Christina and good morning, everyone.

Nick will kick off our call. This morning with his perspective on our performance Aldo will then provide a more detailed review of our financial results.

After Nick provides some closing thoughts we'll take your questions.

Additional information and the factors that could cause our results to differ materially from those in our forward looking statements are contained in our SEC filings.

Finally, 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.

So information regarding those measures is included in our earnings release issued today, which 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.

Okay.

Well I'll start with a view of our fourth quarter give you an update on the environment and the trends we see.

And I'll take you through some of the turbulence, we've overcome and the advancements we've made an algo. We'll then as usual give you a more detailed review of the financials.

The fourth quarter was encouraging.

It affirmed the characteristics that makes snap on the company, we know what could be the resilience of our markets the power of our strategic position and the consistent and capable execution of our teams.

We ended up the momentum cutting through the challenges and the numbers testified to adjust that.

Our reported sales in the quarter of 1 billion $108 3 million were up three 2%, including $12 2 million for acquisitions being offset by 3 million of unfavorable foreign currency exchange.

Organically our sales grew by two 3% importantly, if you compare to the pre pandemic levels of 2019 before the period to period variability of last year.

You see a clear and unmistakable upward drive.

2019 sales in this past quarter were up 16% as reported and 13% organically continuing.

The ongoing trend of accelerating expansion, increasing higher and higher.

Pre COVID-19 levels.

But it also bears the marks of the snap on value creation processes safety quality customer connection innovation and rapid continuous improvement or RCI as we call. It all combining to offer significant progress at.

The progress that was Opco operating income of $232 2 million was up 16 point $16 million from last year and the Oi margin.

It was 21% an all time high up 90 basis points from last year, and 310 basis points from 2019, all achieved by.

By overcoming the challenges of this day.

For financial services operating income of $67 2 million was down from the $68 5 million of last year, but delinquencies in the quarter were below both 2020 and those of 2019.

And ongoing Testament to our unique business model and its ability to navigate through the most threatening of environments.

And the competence and the combination of the results from Opco on financial services offered in overall consolidated operating margin of 25, 1% up from the 24, 4% of last year and a 22, 5% recorded in 2019.

Our quarterly EPS.

It was $4.10 well over the 382 of a year ago, which included a <unk> <unk> charge for restructuring and that $4.10 was up 33, 1% over 2019.

Considerable gain in my book.

Well those are the numbers now.

Now, let's speak about the markets, we don't believe the auto repair environment continues to be favorable.

In the area of serving vehicle Oems and dealerships, we do see some turbulence new car sales around the world remain mixed with China, generally progressing, but both North America, and Europe , Europe , having a tough fourth quarter.

Overall volume remained below the 2019 levels and some new model releases and features were delayed by supply chain constraints and that impacted the associated essential tool programs that we're involved in.

OEM projects aside however.

Dealership repair maintenance and warranty are all healthy techs are seeing good times and the dealers are looking to support our expansion in their shop and affect the OEM market is mixed but technicians are quite positive, there's a growing appetite repair shop equipment, but essential tool programs are attenuated.

Now, let me independent repair shop is a horse of a different color competence is uniformly sky high based on what we hear from our franchisees shop owners and technicians optimism in independent repair shops continues to be strong and our sales in that sector.

They reflect that confidence so we believe on balance vehicle repair is a great place to operate for our tools group and for our repair systems and information or <unk> group.

So the critical industries, where our commercial industrial.

Group play or C&I plays.

We are seeing areas of progress, but the lingering effects of virus have created headwinds in the results in the quarter showed that trend with variations from country to country, a recovery in Asia, and emerging markets, but Europe being quite mixed.

There are also differences from sector to sector education natural resources in general industry, showing improvement, while our military spending continues to experience.

What I'd say is substantial challenges overall.

Overall, however, I would describe our C&I markets is holding their own against the turbulence.

Variation.

They're a constant fuel for our progress, especially customer connection understanding the work of professional technicians and innovation matching that insight to technology. We believe our product lineup just keeps getting stronger every day and we keep investing to make it. So vehicles are rising and complexity technicians need assistance and so products are becoming more sophisticated to match the changing requirements.

<unk> and.

Snap on is keeping pace in 2021, we had more hit $1 million projects than ever before.

We have endeavored to the virus here are to maintain our product our brand I've spoken of this before and the virus area, we've endeavored to maintain our products our brands and our people and we believe that continuing commitment has served us well.

14% organic gain over 2019 strong numbers.

The as reported Opco Oi margin for the year was 20% a new hot up from the 17, 6% in 2020 are exceeding the 90% to 92% of the pre pandemic 2019.

As reported earnings per share for the year were $14 92.

34% or 28, 3% as adjusted for the nonrecurring restructuring the restructuring in 2020 and up 21, 7% as adjusted for 2019, all clear signs of ongoing momentum.

Now to the operator for the operating groups.

Start with C&I.

Fourth quarter sales of $358 7 million for the group were down $5 7 million, including $4 1 million of unfavorable currency.

2019 sales grew $5 $8 million, reflecting primarily acquisition volume and currency impact.

The period saw a recovery in Asia with Indonesia.

In the quarter, we saw we did see recovery in Asia, with Indonesia, India, Japan, South Korea, and China rising.

Europe , and North America were more impacted by the environment and were down slightly in the quarter.

Looking at the sectors nice progress with our position was achieved in our position torque line.

And that progress is what that progress was more than offset by lower critical industry activity attenuated attenuated in those critical industries, primarily by lower U S military spending and by supply chain driven constraints and in the custom kitting area.

Driven by innovative new products developed through customer connection and observational work great offerings like our recently released two before our line of three quarter inch.

Drive Breakover torque wrenches.

Capable of this wrenches capable of accurately fastening from $450 to 700 centers 50 pound feet its design.

Designed specifically for heavy duty applications tough jobs, such as talking law Big trucks, the new unit combines our nor bar, our recently acquired nor bar industrial torque technology with a robust ratchet designs produced in our Elizabethton, Tennessee factory those original light vehicle ratcheting mechanisms of our Tennessee plant, where we are.

Re-engineered for for higher attention heavy requirements and were directly matched to our unique nor bar breakover device, which provides a clear indication that the torque target has been reached ensuring reliable accuracy.

Every time.

The ratchet the.

The ratchet design with our patented fuel hedges is rugged capable of withstanding very high stresses and has it easy easy to read adjustment mechanism that reduces the possibility air and is virtually maintenance free the new wrench also has a quick release feature for easy This assembly complex storage and great portability the snap on.

<unk> you.

We'd like to say strength accuracy and convenience and as you might expect sales have been strong as the need for precision increases.

Torque products are becoming more prominent and snap on is playing an active role in that rise.

C&I mixed results, but significant areas of progress boding well for its future.

Now, let's go onto the tools group.

<unk> 21, 5% and has been up now from pre pandemic levels for six straight quarters and the operating margin was 21, 9% easily one of the highest ever up 300 basis points from last year all despite the ongoing challenges of this date.

We have continued to invest in products brands and people.

And the tools group has used that focus to advantage the expanding and considerable gains when the time before the virus makes that clear.

In the quarter and throughout the year. The tools group results continue to confirm the leadership position of our van network. We believe the franchise franchisees are growing stronger and thats evidenced in the franchisee health metrics. We monitor each period. They are an unmistakably favorable trend and that positivity was acknowledged by multiple publications all.

Listing snap on as a franchise a franchise of choice.

This quarter.

<unk> 2020 list of top franchises for veterans and abroad snap on was ranked number two in.

Elite franchise magazine's top U K franchises.

The judges in that ranking state.

That the durability and then innovation shown in the face of unimaginable circumstance or what is the size of this year's top 10.

And the panel was right on.

Durability innovation are what makes the tools group.

Mark the tools group in this storm, it's clear as it is.

Type of recognition.

As a point of pride for us, but it reflects the fundamental strength of our franchisees and of our band business in general, but it would not have been achieved without a continuous stream of innovative new products developed through.

Our strong customer connections learning leading to multiple new problem solving.

<unk> and the result of our in the result of our insight.

In.

In experience in the changing universe of vehicle repair.

Customer connection gives us a great window on that changing universe, and we put it to good use our sales and enhance our sales of hand tools were up nicely in the quarter and of course, new products led the way there are innovative 30 U S. D. M core half inch drive impact sockets were significant contributor born out of customer connection observing the work and auto.

Motive shops, the special sockets, there they range from 17.

2017 to 22 millimeters, Tom with an extra deep picks up to three quarters inch deeper accommodating the lug nuts with decorative caps that are becoming so comment on the latest models. The new sockets provides a clearance needed to fit right over those enough coverage without damage grabbed a love and log in and enable quick removal without having.

To remove the caps it save significant time over a day of repair activity.

<unk> made right here in our Milwaukee plant that released just this past quarter end.

And initial sales have been gangbusters, I'm, telling you and maybe making.

Making those sales have made that new socket line of hip products just in the volume in the fourth quarter.

Against the wind.

Now for our C&I.

Volume for the for the fourth quarter was $392 5 million up eight 7%, including acquisitions and five 5% of organic growth with gains in sales of under car equipment increased volume of handheld diagnostics and the rise of information and data subscriptions being partially offset by a decrease in our business.

Focus on the vehicle Oems and dealerships.

<unk> operating margins of $97 2 million rose $77 2 million or 8% versus 22020.

In that number in 2020 included a $1 million of restructuring costs compared with a pre pandemic levels. In 2019 sales grew 57, 5 million 17, 2%, including a $43 7 million or 13% organic gains.

And the Rsi in gross Oi margin of 24, 8% compared with 24, 9% and a 26% registered in 2020 in 2010, respectively with the impact of acquisitions Attenuating, a generally positive balance for the operations.

Again.

Software products and subscriptions.

For art and I were a significant plus along those lines. Our Mitchell one division providing software to independent shops continues to succeed pursuing customer connection and innovation launching great new products to improve shop assistants, who.

<unk> just added.

More powerful and exclusive features to its award winning Mitchell one pro demand auto repair information software.

Do you see as auto electronics have expanded wiring diagrams have become a rising importance in vehicle diagnostics diagnosis and repair and the new pro demand significantly advances what is already a clear lead from Mitchell one in diagram navigation offering new features that.

Provide interactive dropdowns displayed connection date.

How easy movement to the next diagram on the diagnostic trail and enabled a seamless recall of previous viewed circuits sort of look back the needed in the repair process.

You might expect the initial reactions to the new updates has been quite enthusiastic he asked from.

From both the shops and from the technicians.

All music to our years.

So those are the highlights of the quarter.

Doing what we expect to do.

Achieved ongoing process.

Again achieve ongoing progress against the storm.

New record.

<unk> $4 10, a considerable rise to new heights, overcoming all headwinds and demonstrating continued confirmation that snap on has emerged from the pandemic much stronger than when we entered with the momentum that we're confident will propel us to even higher heights as we move forward.

Now I'll turn the call over to Aldo Aldo Thanks, Nick our consolidated operating results are summarized on slide six during the fourth quarter of 2021, the resilience and continued strength of our business model enabled snap ons are closed the year with another period of robust financial performance quarter.

Quarter also compared favorably with the fourth quarter of 2019, which being a pre COVID-19 time period in some cases, maybe serve to be the more meaningful baseline.

Additionally, net sales in the period increased 16% from $155 $2 million in the fourth quarter of 2019, including a 13% organic gains $29 million of acquisition related sales and $7 1 million of favorable foreign currency translation.

Both comparisons the organic gains more than offset lower sales to the military.

Consolidated gross margin of 48, 1% improved 10 basis points from 48% last year.

The gross margin contributions from the higher sales volumes and pricing actions 30 basis points of favorable foreign currency effects and benefits from the company's RCI initiatives offset higher material and other costs.

For the quarter the corporation continue to navigate effectively the supply chain dynamics associated with the global pandemic.

Operating expenses as a percentage of net sales of 27, 1% improved 80 basis points from 27, 9% last year, which included 10 basis points of costs from restructuring actions.

The improvement is primarily due to higher sales volumes, partially offset by 40 basis points of unfavorable acquisition effects.

Operating earnings before financial services of $232 2 million compared to $216 $2 million in 2020, and $171 $4 million in 2019.

<unk>, an improvement of seven 4% and 35, 5% respectively.

As a percentage of net sales operating margin before financial services of 21% improved 90 basis points from last year and 310 basis points from 2019.

The operating company margin of 21% represents the highest quarterly level of profitability and snap ons modern day history.

Operating earnings of $67 $2 million decreased $1 $3 million from 2020 levels, reflecting the lower revenue, partially offset by lower provisions for credit losses.

Consolidated operating earnings of $299 $4 million increased five 2% from $284 $7 million last year, and 28, 2% from $233 6 million in 2019.

As a percentage of revenues the operating earnings margin of 25, 1% compared to 24, 4% in 2020 and 22, 5% in 2019.

Our fourth quarter effective income tax rate of 22, 3% compared to 21, 8% last year, which includes a 10 basis point increase related to the restructuring efforts.

Net earnings of $223 $7 million or $4 10 per diluted share increased $14 $8 million 28 per share from last year's levels, representing a seven 3% increase in diluted earnings per share.

As compared to the fourth quarter of 2019, net earnings increased $53 $1 million or $1 two per share representing a 33, 1% increase in diluted earnings per share.

Now, let's turn to our segment results.

Starting with the C&I group on slide seven.

Sales of $358 $7 million, a decrease from $364 $4 million last year, reflecting a $1 $6 million organic sales decline and $4 1 million of unfavorable foreign currency translation.

The organic decrease primarily reflects a low single digit decline in sales to customers in critical industries within critical industries lower sales to the military were partially offset by gains in general industry and technical education as well as by improved sales into oil and gas applications.

As a further comparison net sales in the period increased one 6% from 2016 levels, reflecting $8 7 million of acquisition sales and $3 $8 million of favorable foreign currency translation, partially offset by a $6 $7 million organic sales declines.

As compared to 2019 sales in our European based Handfuls business were up mid teens, those gains were more than offset by lower activity with the military.

As you May recall, the fourth quarter of 2019 included sales for a major project that is substantially complete.

Gross margin of 36, 5% declined 130 basis points from 37, 8% in the fourth quarter of 2020, primarily due to the higher material and other costs, partially offset by benefits from RCI initiatives.

While pricing actions have been taken in this segment to help offset the increasing cost the longer term nature of certain customer agreements affects the timing of price realization.

Operating expenses as a percentage of sales of 22, 5% in the quarter compared to 22, 4% last year.

Operating earnings for the C&I segment of $50 1 million compared to $56 $2 million last year, the operating margin of 14% compared to 15, 4% a year ago.

Turning now to slide eight.

Sales in the snap on tools group of $504 $8 million increased 2% from $494 $9 million in 2020, reflecting a one 6% organic sales gain and $2 million of favorable foreign currency translation.

The organic sales increase reflects a low single digit gain in our U S business, partially offset by a low single digit decline in our international operations.

Net sales in the period increased 22, 6% from $411 7 million in.

In the fourth quarter of 2019, reflecting a 21, 5% organic sales gain of $3 $9 million of favorable foreign currency translation.

Sales gains in the quarter were led by our handfuls category with strong performance sequentially as well as versus both the fourth quarters of 2020 and 2019.

Operating expenses as a percentage of sales of 22% improved from 24% last year, primarily reflecting the higher sales and benefits from ongoing RCI and cost containment efforts operating earnings for the snap on tools group of $110 $5 million compared to $93 $6 million last year, the operating margin of 21.

9% improved 300 basis points from 18, 9% last year.

Turning to the <unk> group shown on slide nine.

Sales of $392 5 million compared to $361 $1 million, a year ago, reflecting a five 5% organic sales gain and $12 2 million of acquisition related sales, partially offset by $500000 of unfavorable foreign currency translation.

Also during the quarter the arsenide group continue to benefit from the increasing number of monthly software subscribers towards aftermarket and dealership repair shops.

As compared to 2019 levels net sales increased $57 5 million from $335 million, reflecting a 13% organic sales gain of $12 2 million of acquisition related sales and $1 $6 million of favorable foreign currency translation.

Gross margin of 46, 1% was unchanged from last year as benefits from pricing actions and 60 basis points from acquisitions were offset by higher material and other costs.

<unk>.

Operating earnings for the Arsenide group of $97 2 million compared to $90 million last year.

Operating margin of 24, 8% compared to 24, 9% a year ago.

Now turning to slide 10.

Revenue from financial services of $86 9 million decreased $6 5 million from $93 four last year, primarily as a result of an additional week of interest income occurring in the 50, <unk> 2020 fiscal year.

Financial services operating earnings of $67 2 million compared to $68 5 million in 2020.

Financial services expenses of $19 7 million were down $5 $2 million from 2020 levels, primarily due to $5 $6 million a decrease in provisions for credit losses, resulting from favorable loan portfolio trends, including reduced year over year net charge offs, which support lower forward looking estimated reserve.

<unk>.

As a percentage of the average portfolio financial services expenses were nine tenths of 1% at one 1% in the fourth quarters of 2021 and 2020, respectively.

And the fourth quarters of both 2021 and 2020 the average yield on finance receivables was 17, 7% in the <unk>.

Average yield on contract receivables was eight 5%.

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 operations the.

The 60 day, plus delinquency rate of one 6% for U S extended credit compared to one 8% in the fourth quarter of 2020.

Sequential basis, the rate is up 20 basis points, reflecting the typical seasonal increase we experienced between the third and fourth quarters.

Now turning to slide 12.

Cash provided by operating activities of $222 $7 million in the quarter reflects 97, 2% of net earnings and compared to $317 $6 million last year.

Change in working investment is largely driven by increased receivables and higher levels of inventory this year versus a reduction of inventory in 2020.

Net cash used by investing activities of $43 8 billion.

Included net additions to finance receivables of $9 7 million $16 3 million of capital expenditures.

Net cash used by financing activities of $154 1 million included cash dividends of $76 1 million and the repurchase of 355000 shares of common stock for $75 $5 million under our existing share repurchase programs.

As of year end, we had remaining availability to repurchase up to an additional $454 $9 million of common stock under existing authorizations.

For 2021 full year free cash flow generation of $872 $6 million represented about 104% of net earnings.

Turning to slide 13.

Trade and other accounts receivable increased $41 6 million from 2020 year end date.

Days sales outstanding of 58 days compared to 64 days at 2020 year end.

Inventories increased $57 3 million from 2020 year and on a trailing 12 month basis inventory turns of two eight times compared to two four times at year end 2020.

Our year end cash position of $780 million compared to $923 4 million at year end 2020, our net debt to capital ratio of nine 1% compared to 12, 1% at year end 2020.

That concludes my remarks on our fourth quarter performance I'll now briefly review a few outlook items for 2022, we.

We anticipate that capital expenditures will be in a range of $90 million to $100 million.

In addition, we currently anticipate absent any changes to the U S tax legislation that our full year 2022 effective income tax rate will be in a range of 23% 24%.

I'll now turn the call back to Nick for his closing thoughts Nick.

Thanks Aldo.

Well, that's our fourth quarter.

Positive performance overcoming challenges.

As we expect to do.

In these times of turbulent we continued to rise based on the resilience of our market vehicle repair.

Spanning at the shop level techs plumped in garages optimistic overcoming the postponement of a central OEM programs critical industries mixed with the profitable, but with promising areas gains in general industry natural resources and education and progress in emerging markets.

Difficulties or in the air, but we were able to perhaps were nonetheless on a power of our strategic position controlling the customer interface with our wide product line and unique brand and perhaps most importantly, we rose on a consistent and capable execution by our team employing agile marketing considered inactive.

<unk>, new and higher value products quick redesigned to match available materials aggressive stock spot buying and as always our ongoing RCI.

Positive second derivative and the rising sales quarter by quarter.

Opco Oi margins of 21% a record high in the midst of multiple challenges up 90 basis points from last year and up substantially more from 2019 and it all came together for an EPS of $4 10 up seven 3% from last year and 33% from the pre pandemic period, leading to a full year.

Yes, a $14 90 to new Heights.

Despite the storm.

It was an encouraging quarter and the year.

Position.

And engage the considerable capabilities of our challenge tested team will continue to track progress throughout 2022 and well beyond.

Now before I turn the call over to the operator.

I'll speak directly to our franchisees and associates many of them are listening to this call.

My friends.

You have the base of the success we've registered this quarter in this year.

For the extraordinary progress you achieved you have my congratulations.

For the unique individual and collective capabilities you brought to bear against the challenges you have my admiration.

And for the commitment you bring two are now in the conviction you hold in our future.

You have my thanks.

Now I'll turn the call over to the operator operator.

If you'd like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment again press star one to ask a question.

And we'll take our first question from Scott <unk> with C. L King.

Hi, Good morning, guys and thanks for taking my questions.

Okay Scott.

Today, I'll frame things out obviously, the comparisons getting more difficult can you maybe talk about in the tools group.

In the U S.

On a two year stack and maybe also further flesh it out by tools and some of the other segments.

Well look I think the tools group is demonstrating itself I mean, if you look at the pre pandemic levels. It's been up now six straight quarters and it was up over 21% in this quarter I think was 21, 5%. So it seems to be moving upwards and all of our good power.

This time of turbulence the tools group is really well positioned when I say, our strategic advantage of being with with wide product line and unique brand to control the interface with the end customer that's exactly what the tools group does in spades.

It's able to place, it's able to bring value new value products that don't look like price increases because people are paying for more features and so that's a that's a very strong position. They have also they can market annually. So if you have supply chain problems.

They can pitch their promotions to move people towards what we have a lot of and have.

Wage somewhat from things we have less of the same time, they're working pretty well in the factories, because they're they're vertically integrated so you see there kind of numbers at 21, 9% I think we were very encouraged by when we saw and so you see the tools group doing well in sales in terms of profitability and if you look back to 2019. What's happened is I think I've said before is that.

We have figured out.

For the period, we were investing in SG&A.

And say like 18, and 19 to try to figure out how to how do we expand the tools group's selling capability.

And it seems to have worked our selling capability of our franchisees has gone up each quarter over that you can see the expansion second derivative looks pretty good for us so.

So youre seeing that play out what we're doing now is we're of course plumbing the ceiling of that see how far it would take us and where we're investing and looking at other possibilities to keep that streak going we think is we don't know how far those things we understood in terms of social media in terms of in terms of being able to train more effectively will bring us, but we're pretty optimistic about.

And I thought I was pretty clear about our views about momentum going forward. In this period. If you look at <unk> start to come back I mean, the thing is it has had.

<unk> had some good quarters, but it's had some quarters, where the margins were down but this quarter 23, 8% down 10 basis points and that's against multiple decades, much more like I think 80 or 90 basis points of acquisition impact.

What you see in RF Tonight is a continuing positivity around the independent repair shops, particularly diagnostics and information products and the rise of subscriptions and software keeps ticking up because we keep emphasizing that particularly things like the innovation you've heard about heard about Mitchell in terms of navigating the.

<unk> diagrams and the car that's a big deal.

These kinds of situations. So you see that playing out arsenide I think they were up five 5% organically in the quarter and up 13% versus last year and up 13% versus pre pandemic levels. Another very positive quarter C&I is more vulnerable to the turbulence of the day H because because you have a lot of mixed markets.

And a lot of sectors a lot of countries and in that talk Dale you see some countries that are down, particularly in Europe in this quarter, which was difficult for you and then C&I in some of the business as I did say the customized toolkits well.

Customized toolkits of great just great margins on them blocks, but you have in those kits, sometimes couple hundred tools and the sourcing situation. So today when you are going to deliver those all many of them from individual sources, you can get disruptive in terms of when youre going to be able to deliver and create some problems and then on top of it for C&I.

Big piece in the critical industries. The military business is pretty weak, we always we expect that to come back and we expect C&I to come forward, but we see tools group gangbusters, we see our C&I coming back coming back from how they've been they havent been weak, but they're getting better their heating up you can see that number and you see you see C&I kind of holding us.

And kind of flat sales, but we figure as as we get better at managing the situation. We have a challenge tested team that does pretty well in the C&I is going to keep coming back so we like our momentum going forward.

Got it and just last question. This is through the first quarter of <unk>.

You heard about meaningful or any.

Quasi meaningful impact from supply chain can you maybe talk about that.

Any further mitigation efforts that you guys can put through whether it's RCI or anything else.

Wow.

Let me just say Bill I, Didnt say I've said when I went.

When I bought a.

Burrow down on Arps on C&I, I mentioned supply chain.

But our view of this is it's always something.

It's always something and if you look at our numbers up what 15%, 13% over pre pandemic levels.

91% Oi margin.

I don't know if you look at the numbers you can see any turbulence in those numbers.

So I think we're managing through it yes of course, it will get better as we go forward I mean, its hard for me to predict but as you as you get into in a moment, you'll get better at managing it right now we're pretty good agile marketing we're good at managing our redesigning our products. We're good at spot buying so we don't get disrupted in general we have certain.

Nodules of disruption that we'll figure out and we'll solve but you don't really get that kind of tying a problem going forward some of our businesses.

I think the numbers say that was a good quarter, whether we thought we had turbulence or not.

Okay.

Got it thanks again Thats all I have.

And we will take our next question from Bret Jordan with Jefferies.

Hey, good morning, guys.

<unk>.

You called out I guess, some of the pricing contracts and in <unk>.

C&I as you know.

Obviously costs of everything have gone up versus the prices you received could you talk maybe about the magnitude and the timing of some of the pricing resets that you have coming forward.

Yeah.

They're all over the map in terms of that situation and thereby there by segment, but look you know C&I is a point there was C&I is a longer wave business.

So you have you have commitments with some customers not all customers. So you'll see some impact on that and you price associated with that were getting some pricing in C&I, some but not as much as not as not other things are big thing isn't so much about pricing, it's managing those costs and so the idea of C&I I think our disruption.

Is mostly associated with what I pointed out in terms of the custom custom.

Custom kitting situation trying to deliver those things. So that's been more probably the biggest impact on this attenuating some of their volumes, particularly in critical industries.

I thought I thought the fourth quarter for those guys was brutal so we didnt see much if we're talking about projects, we didn't see much cadence different I mean actually theres a lot of there's a lot of new models coming out that are going to come out new features and I don't think we saw any cadence change in the quarter now.

I'm on shaky ground, a little bit about saying that there might have been some of it but I know my macro view of it Brad is that was a tough quarter for the auto companies. So I think I think as we go forward, it's got to get better they are going to shake loose some of those and so we're going to get because we're already involved in some of those products. We were just waiting for them to come out that's that's what I see.

I think I think the if you look at the dealerships. If you go like I thought I try to make good at the dealership level. The repair was great at that situation. So we're seeing dealerships buy equipment in one of the one of the uptick center. We didn't I don't think I mentioned it here, but one of the upticks in the iceni businesses. It's a right. It's a nice rise in repair and repair shop.

Your car equipment.

<unk> in the balances and changes in those kinds of things and so that's been going up also they are buying software from us. So so that's pretty good in that situation, but if youre talking about the programs out of the OEM Youre guess is as good as mine when that breaks loose. All we know is they've got a backlog in there that is going to be good for us when it breaks.

I did not.

Watson and the reason it is in the rig.

I Wanna get away from talking about the the numbers by product line in the tools group to us it doesn't matter, we skinned the cat many ways. So the point about the tools group is 21, 9% margin now handles were a nice piece of that but you know I will tell you the big ticket items were also.

So up in that period that.

Tool storage and diagnostics were up the hand tools are are are sort of the flavor of the day. These days because of course, we're more vertically integrated fundamentally when the hand tools comes in the door. All we had a steel capital and labor boom.

So it wasn't it was but it's been it's been strong for a number of different period, a number of different periods. So I don't really want to get down that road, just sate and hand tools was a nice product.

A nice nice, but as what's diagnostics in the period and we had increases in tool storage as well okay. Great. Thank you.

Sure.

And we will take our next question from Luke junk with Baird.

Hey, good morning, Thanks for taking the questions.

Sure.

First question, Nick I wanted to ask a follow up on something that you've mentioned a couple of callers ago and thats regarding the investment spending posture as we begin 2002 or maybe even more broadly as we go through the next few years at this stage of the cycle you've been steadfast about maintaining the rate of investment in the tools group in particular in your reference.

Plumbing the depths of these capacity creation initiatives from here just wondering if you're able to talk about any new focus areas or within the capacity creation initiatives, where we might see the company pushed a little incrementally in 2020, well look I think I think I think this you know we have of course, we're taking a look at where how.

We source and where we need more capacity in the factories and those kinds of things you know, but I don't see it there I don't see it distorting our financials in that regard I think it's a couple of things when I said that I didn't mean that the OE whats going to explode or anything like that fundamentally our OE was higher before because we were spending a lot of effort and a lot of different.

Corridor is trying to figure out what would actually resonate with the tools group and make a difference.

Are always in a nice place now you know and of course as you.

You've come out how you say that youre kind of loosening your belt a little bit.

<unk> had a downtick in the in the in the in the Covid, but I think our <unk> is at a nice level. It may go up a little bit, but not not not that much.

And the franchisees and our customers, we got oodles of data and we could do a better job in terms of predictive behavior on those things. So we're spending time looking at that right now I don't have anything to report other than that boy, it's obvious to US we have Mitchell type sure track data, which we have about cards.

Of that about our customers.

Okay, and then I wanted to.

Ask a bigger picture question is a follow up thank you for that.

Dealer FX were.

Approaching the one year anniversary of that acquisition I don't know if you could speak to progress in year, one under the company's ownership and looking forward more importantly should we expect to hear more about this business in the future as a complementary software platform sitting alongside Mitchell one in that dealership environment. Thank you.

Sure I mean.

Look I think that's why we bought it for two reasons one from a financial point of view. It is a twin of Mitchell, one and I don't know if you're familiar with Mitchell one, but if you pay you know I know.

You are we've been paying we've been talking about the growth of our diagnostic.

Diagnostics and software and independent repair shops, almost every quarter since I've been here and they just keep going upwards boom boom boom.

And so so Mitchell one knows how to handle that interface and so we're using that that knowledge that I would say challenge tested understanding of the business to apply to dealer FX in it.

And in the fullness of time, that's going to work its management magic. There. We believe we'll have a.

A twin I'm, not saying, it's going to be as great as Mitchell one it may be but it's going to be a good business. So you're going to see it from a financial point of view, but it's also important from us strategically because as you know it has a window on what happens with these new technologies and the new technology is going to be the drivers of the future and thats going to call. It help us call in the air strikes for what.

Well what product, we develop because we're going to see it first and dealer FX, so you're going to hear us talking about that but these are early days. It's the first year you know there's a lot of turbulence.

These kinds of things in terms of Canada, I think Justin Trudeau just got just.

Just got the Covid himself. So this impacts the activity in Canada, but I believe.

Certainly dealer effects was up in the quarter and were making and were sort of making our expectations in this but you'll hear more of it as we go forward because it's going to be a big factor on us in terms of early warning also financially.

Great well I appreciate it though it's still early days there.

Great color and ill leave it there thank you.

Okay sure.

Yeah.

Take our next question from Liz Suzuki with Bank of America.

Great. Thank you. So this one is for although I guess could you just talk about the inflation impact that you expect through the course of the year and how the cadence of that could work out with the dynamic of cost and price.

And how that would impact the P&L.

So certainly of course, everybody is talking more about inflation, but that in the past.

Snap on was not immune from that however.

I think it's just something we manage it in stride first we always look for alternative ways to reduce costs, whether that be alternative sourcing alternative componentry rapid continuous improvement to get some productivity and of course, if we can't cover that then we look for pricing actions to help us out and we do believe we have pricing power personified by.

So put in perspective lives just I'd add on that you know if you just look at our hit products. We bring couple three dozen new products every quarter to the market.

So that's a big factor for us.

Great. Thank you and I guess second question is just on priorities for capital I mean, your net debt to capital ratio came down about three percentage points since last year that are historically low level.

What are you thinking about for this upcoming year and beyond in terms of where your priorities lie.

Well look I think our priorities are still in line.

I think I think we believe the best return on capital for our people for our for our investors.

And for our constituents is investing in our business. So to the extent, we can invested in business and some of these new new activities or anything like that we will we support that.

Currently we have a pretty full I would say pipeline of acquisitions that we keep looking at and I kind of think.

Call Me Crazy, but I think in the turbulence of the acquisitions made me more available in a situation. So we're kind of hoping that you know.

We're kind of focus on a few things that we may have some ability to move and we're not afraid to take big ones that are smaller.

And that situation and then we have our our board just.

Reloaded, our share buyback situation I think now and another $500 million in and and you know we have our dividend, which we.

Every year changes and this year, it's marked by the idea of there's a lot of turbulence out there maybe there's some opportunities for it.

Great. Thanks, that's very helpful.

Okay.

And we'll go to our next question from David Macgregor with Longbow Research.

Yes, good morning, everyone.

That's encouraging.

It's encouraging to hear you are leaning a little more into the data analytics. So I think that has the potential to move the needle so congratulations on that initiatives.

I guess to start off with what do you think sales off the truck were up year over year.

I think about the same I think roughly the same as the as the as the as the.

Tools group I would say in the same ballpark in fact, if you look over David If you look over two years' worth.

Now there are differences from quarter to from.

From quarter to quarter, but if you look back over two years they've been about the same.

We generally sees in this quarter was the same kind of thing it was a little bit of noise with the with the 50 <unk> week in the in the in the in the in the franchisees probably.

Got it.

And then just still on the tools group, but you talked about the 300 basis points of operating margin improvement. So we're 200 basis points of that cumulative SG&A at 60 basis points was FX. So clearly it feels like the price cost pressures that everybody else in the world seems to be feeling or are coming home to roost at snap on as well.

Do you think just would make holding I think hold most margins.

Or is it.

Is a is a common occurrence in this environment.

I'm just trying to get at the kind of.

Just trying to get at kind of the price cost.

Sure.

I think look I think yes, we have we have pressures on a lot of different things. There's a lot of things that go in that gross margin and there are a lot of things that go in the SG&A you know.

I think our view was on the Oi margin in general.

The up to 300 basis points, we I think I've said this on other calls long ago that we're kind of agnostic between those two numbers.

We kind of focus on the Oi margin.

Up 300 basis points not bad now you could say, okay, well you know.

The gross margin is up less than the than than the than the OE, but if you look back to pre pandemic levels are up both up reasonably well.

A 100 basis points and 200 basis points that I don't think thats chopped liver in this environment. Yes. There are there are pressures associated with with the with the supply end and sourcing, but we're able to manage it such that we don't give up anything.

So I guess my question on this is really just as you look forward to 2022, Nic you talked to go.

Two degrees or referenced the opportunity to raise pricing within the tools segment, but also to bring kind of better margin products, a better incremental margin products to the marketplace and cover your costs.

Cost productivity that way.

Can you give us a sense of how youre thinking about the split between those two opportunities do you think you'd be leaning a little more on the pricing side, and then supplementing that with a better margin product are you leaning a little more towards better margin product and supplementing that with pricing.

Generally I think of as I think it was the latter I think I think that we would we would rather have it with our new products and then be bullish around those I think it isn't isn't itself. So bald-faced I mean fundamentally I just want to come back to your original question it would be a mistake to.

Think that the cost werent coursing through our numbers this quarter.

Because they are.

And so we have those in and we're holding our own against those with pricing and with those like I said people I think sometimes people don't realize how many new products, we bring out I mean.

If you just look at the hit products in there and they are the ones that are the incandescent ones and $1 million in the first year, we have two.

Two to three dozen every quarter.

And so so we have a lot of opportunity in both of those both of those areas and I think that's what allows us to maintain this and are just saying our first rodeo. So we know we know how to manage this I think our team not me I don't know I'm just train dog at the top of the behavior, but but the thing is the.

The guys know how to manage it as such they can bring with a combination of direct pricing plus plus promotions.

Plus the new the new products. They can manage that interface very well, that's what I meant about the strategic position. So we're not we're not driving our handfuls at all David.

Great. Okay, well, thanks for that offer that answer I guess I wanted to also ask about the originations down 6%.

And then also the yields coming down a little bit on the portfolio as well or are you just seeing changes in patterns in terms of how new tests, new tests are using credit or how much of this is maybe just substitution already credit youre, just losing share to your franchisees on the credit front or and how much it might just be alternative sources of credit as some others have talked about.

I think I don't think I was just with the franchisees at the kickoff in Omaha, Yeah, I got to go to Omaha, Allopathic Orlando you can figure that one out in January but I was with the with the group.

So I don't think we're losing any other alternative sources. They just think look these guys are flush.

So they're willing to take I mean, if you look at the numbers the BLS data says that.

Investment in repair up double digits on the year over year basis in both nominal and real basis and the in the ER.

Technician wages are up a technician wages were up over 5% year over year and in the number of technicians out there are growing so I think you'll see this kind of a growing flush group of people and they're real they're not they're not.

For a day or two or three they're going to generate more year over year originations because it happens in the field at some point I don't know how much that accounts for but you can you can knock down some of that so.

I don't think that's an unusual situation.

And then the credit originations down 16 six.

Could you talk a little bit about what might've been happening here.

The losses, although I'd say, if you take into account $10 million that I've mentioned that that extra week alone. We would have probably been up slightly I would say in the U S environment down a little bit of international International is not quite as robust as the U S. I think we mentioned that as well, but we were up in the U S. In terms of our sales.

International and then if you look at the.

Given the contract originations.

2020, we had more new startups, so there's a little bit more stable environment now where the franchisees are there was less startups in the international Arena in particular, and when you start up a franchisee David many of the franchisees tend to like the Liza vans and borrow from snap on credit so that could affect rate.

So its really I don't want to just dismiss it.

I always try to remind people that you are still not completely certain environment that we find over at the time of history that people tend to buy lower price point items until certainty restores. So I'll think tool storage has been as robust as you see in the <unk>.

Our revolving credit accounts, and therefore, you see more revolving action on the animal side.

That makes sense last question from me is just with respect to the share repurchase activity.

You talked about the fact that you just had a another authorization from the board.

Activity in the fourth quarter really didn't change much year over year.

70 odd million a good number for the full year by the way.

There, but let.

Let me think about share repurchase here and why wouldn't you step up and just get a lot more aggressive here in terms of buying back your stock at these levels.

Well, we always think of things like that but if you look at the total of time averages between 2% and 3% of the outstanding share count more or less and it's hard to be an expert in this market you know I have no idea.

Advertising revenues of Facebook will impact snap on in the next day, when I get up and things of that nature of them being extreme in that example, but we.

We tried to take a measured approach to it has its role it's not the only solution in terms of how to use cash.

Okay. Thanks, very much Jim.

Thanks, David.

That concludes today's question and answer session. Mr. <unk> at this time I will turn the conference back to you for any additional or closing remarks.

Thank you all for joining us today, a replay of this call will be available shortly on snap on dot com as always we appreciate your interest in snap on good day.

This concludes today's call. Thank you for your participation you may now disconnect.

Q4 2021 Snap-On Inc Earnings Call

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