Q2 2022 Snap-On Inc Earnings Call

Good day and welcome to the snap on incorporated 2022 second quarter results Conference call. Today's conference is being recorded at this time I would like to turn the conference over to Stare Gartzke Vice President of Investor Relations. Please go ahead ma'am.

Thank you Mary and good morning, everyone. Thank you for joining us today to review snap on second quarter 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 Poly Ari Snap ons, Chief Financial Officer, Nick will kick off our call. This morning with his perspective.

<unk> on our performance, although 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 have provided slides to supplement our discussion these fly.

This can be accessed under the downloads tab in the webcast York 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 are that otherwise discussed managements or the <unk>.

Company's outlook plans or projections are forward looking statements and actual results may differ materially from those made in such statements any additional information and the factors that could cause our results to differ materially from those in the forward looking statements are contained in our SEC filings. Finally this presentation includes non-GAAP measures.

Financial performance, which are not meant to be considered in isolation or as a substitute for their GAAP counterparts. Additional information regarding these 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, Dan Good morning, everybody.

As usual I'll start the call by covering the highlights of our second quarter.

Along the way I'll give you my perspective on our results once again.

We are encouraged.

In our markets, they're robust resilient is promising and I'll talk about our progress we believe we're now stronger than ever.

Speaking about what it all means and we believe it means that we're better positioned for more.

Uh huh.

But I won't go into a more detailed review of the financials I'll have to do.

This followed the news and you know that we live today in the midst of turmoil inflation varying supply continuing unpredictable outbreak precipitous lockdowns in a warm in Ukraine.

And snap on has shown through it all we only our advantages in product brand and then people progressing down our runways for growth and engaging our snap on value creation driving improvement, making the most of our resilient markets and extending our positive trajectory piercing the churches.

The story of our second quarter.

Simply one rising momentum we've been meeting the challenges quarter after quarter, and we're simply getting even better at overcoming the difficulties and going forward. We are confident of our capabilities to continue to advance.

And here are the numbers that say, we should be comparable.

Our reported sales in the quarter 1 billion $136 6 million up versus last year by $55 2 million or five 1%, including $32 4 million or 330 basis points of unfavorable foreign exchange organic sales growth was eight 4% with gains in every group.

Compared to the pre pandemic levels in 2019, our upward drive is clear as a bell versus 2019 sales in the quarter Rose 19, 5% as reported and 18, 7% organically. This is now eight straight quarters of being above pre pandemic levels.

We believe we're continuing an ongoing trend of accelerating expansion and are building momentum with emphasis increasing higher and higher demonstrating that we are only getting stronger every day.

The Opco operating income of $246 6 million was up $29 5 million and the operating margin.

It was 21, 7%.

160 basis points from last year, and 170 basis points from 2019 for financial services operating income of $65 3 million compared to the $68 9 million of last year and that result, combined with Opco for a consolidated operating margin of 25, 5% up 100 basis points from last year to 130 from 2000.

19.

And EPS.

It was $4 27.

13, 6% from last year, and 32, 6% above the comparable pre pandemic level recorded in 2019 of $3.22.

I would say that since the third quarter of 2020, I'll say it again, we believe is snap on is stronger now than when we entered this great weathering in the second quarter numbers say it so.

Now, let's talk about the markets auto repair remains positive.

Most if not all most if not all of our key indicators are quite favorable spending on vehicle maintenance and repair spending.

Spending on vehicle maintenance and repair work.

Number of attacks.

Mechanic wages up the.

The techs are optimistic about their prospects and about the greater need for their skills as new technologies, new complexities advanced across the car Park and we saw confirmation of it.

And that broadly held believe for several quarters now is the number of automotive repair technicians continue expanding upward period after period higher now than at any any of the last three decades, and when I speak with whatsapp or as our managers as I as I often do it's.

It's clear that there is a need for more many more at snap on we love it.

Before where parents are strong and resilient market.

That's also reinforced by our franchisees you can see it in our numbers.

You can hear it in their voices, we believe there are more prosperous whatever besides franchisees technician says vehicle repair shop owners and managers. This is ours and I's arena demand for new and used cars is hot but supply is so limited so well all stores.

The pandemic has impacted the auto supply chain sure.

But it doesn't matter.

Lots of new cars or scarcity of new vehicles, the car Parc as large AG and getting more complex and demand for repair remains strong come hell or high water.

And the shops are seeing was clearly starting to invest to meet the current and you didn't get ready for the future. The variety of drugs drivetrain is expanding internal combustion hybrid plug in plug in electric full electric and every day, there's more driver assistance or more vehicle automation increasing vehicle complexity.

Shops, now have a greater need for news flow for new and upgraded equipment, and they're becoming more and more rely on our service and repair information to guide them through the galaxy of new requirements of procedures. So all music to our ears actually get snap on it makes great tools and equipment and it's clearly repair information headquarters <unk> taken advantage of that trend.

Creating new equipment and advanced database solutions.

We now have a strong array of products and that vital area Mitchell one repair information software and shop management software SPX Sps electronic parts catalog or dealer FX shop management technologies electric be electric vehicle health check solutions that are heavy duty a fast track intelligence diagnostic hardware.

These are big databases, and getting more powerful and easier to use helping the shop fix it right the first time and efficiently.

The repair shop is changing rising complexity and ours and I has the products come in batches.

Finally, it's talking about critical industries, where snap on you know, we say snap on rolls out of the garage solving tests of Quad consequence, and we joke. This is C&I territory, our most international operation and its where we see the most continuing impacts of the pandemic.

And its and its children like supply chain inflation and supply chain disruption in a place where customers have been slower to accommodate were headwinds are still persisting and where I'm hopefully S. SKU product offerings are particularly impacted by supply chain challenges.

I suppose everybody knows about the two months of Lockdown in Shanghai that area is a significant C&I business Center and it's also a key transportation hub for our China factories on a lockdown was an obstacle.

And that focused events C&I is particularly challenged by its considerable geographic reach jousting with the varying impacts and protocols and economic turbulence from countries with a white with a varying virus impacts and protocols and the economic turbulence from country to country.

But I would say if you look at the quarter C&I team rose to the occasion.

And then the quarter, we wanted gains in North America and.

In Europe .

And in Asia.

Despite the difficulties.

So I'd describe our C&I markets as representing continuing opportunity and coupled with the automotive repair we believe our overall markets are robust right now and.

And theres considerably more opportunity ahead, as we move along our runways for growth.

And I can't leave this section about robust progress on abundant possibilities without once again speaking of are the engine of our advanced snap on value creation, particularly in customer connection and innovation developing new products and solutions born of the observations gathered right in the workplaces insights that create great new offerings and at the same time helped guide the.

Our franchisees selling capacity with better processes more effective training and more powerful communication all of that helped drive our progress overcoming the difficulties accommodating the virus, taking full advantage of market opportunities charting a continuing positive trend moving forward.

And we're going to keep it going.

Well, that's the overview now let's move to the segments.

In the C&I group sales in the quarter were up two 5% as reported or $8 6 million versus 2021 and that includes $25 3 million.

Million or six seven point that includes a $25 3 million or seven 6% organic gain driven by progress across all our divisions from an earnings perspective, C&I income was 51, 7% a decrease of $3 eight.

Compared to 222021 2 million of that was unfavorable foreign currency and the rest represents the impact of supply chain turbulence on the multi skus C&I products. The Oi margin was 14, 4% down 140 basis points from 2021, but didn't represent progress in that it is 100 basis 100 points sequentially.

From the last quarter, when compared with the pre pandemic 2019.

Periods sales reps sales were up seven 4% organically in the Oi margin of 14, 4% was down 20 basis points, but that included an eight point impact from acquisitions and unfavorable currency.

Now a continuing bright spot in C&I this quarter and again this quarter was SNA Europe , it didn't deliver yet another quarter of growth.

Banding double digits year over year, and well beyond pre pandemic levels all against the wins in Europe with innovative solutions with innovative solutions.

A bottle or old tool management system, leading the way at tailoring products specific customer needs.

Europe is a very market and that's the way Europe is making increasing games by matching the products to the specific tests and that positive SNA Europe was joined in C&I, but valuable contribution from recovering areas in critical industries, like aerospace and general industry and some countries in Asia Pacific.

Like India, Japan, and South Korea, all combined to overcome the decline is slower to recover sectors like the military and natural resources.

We do remain confident in and committed to extending in critical industries and that commitment is confirmed with great new products speaking product last quarter to help solve crucial tasks across both critical industries in automotive repair we strengthened our 14 four volt micro lithium power tool lineup with the with the new snap on CPA 61.

Reagents impact wrench, its a very attractive it's very attractive, but it's also a functional featuring a compaq designed to reach tight spaces of nylon based housing for rugged durability and a special toggle switch trigger for precise control.

The New unit also includes a try being headlight.

But broad illumination of the entire work area now that's a feature that makes complex multi point jobs much easier in the low light conditions that often occur in the workshop will enroll repair you can imagine at the.

The impact wrench also delivers a robust 225 foot pounds of bolt breakaway talking it's controlled by a variable Street drive so that so the operator can apply just the right force for each job and a 14 volt battery with its 225 amp hours ensures consistent output and an extended run time, which makes for a lot more efficient workday.

The C. T. A 361 began shipping early in early in the quarter and it and it was right on target quickly, becoming a million dollar hit product and it's sold out and what seemed like a blink of an eye.

Great products, well, that's C&I, a promising quarter volume up nicely starting to overcome the turbulence moving down its runways for growth.

Now for the tools group.

Sales of $520 6 million up $36 5 million, including $7 7 million of unfavorable currency and a 9.3%.

Organic gains.

And the operating margin.

<unk>, 3.9% up 250 basis points compared with pre wire its 2019 at.

19, compared with pre buys in 2019 sales grew $114 8 million. According a 28% 28, 1% organic grit gain and this quarter's 23, 9% operating margin was up operating margin was up 630 basis points compared with the previous those pre virus numbers coming out of the pandemic stronger.

N D.

Another positive quarter for the tools group with growth across all product lines and beyond this we see further indications of continuing strength other data.

Like the franchisee health metrics, which we monitor every quarter they remain quite favorable on a clearly positive trend.

We do believe our van network remains quite strong and it's not just the numbers just a few weeks ago I spent time with a couple of dozen franchisees representing the regions on our on our U S and Canadian National Franchisee Advisory Council and they were motivated and prosperous.

Susie has to go by the current performance positive about the trajectories of the other vans in the various areas that they represent and very optimistic about their prospects for even more going forward. They believe in their opportunities and their confidence in their future.

The tools group straw.

Strong quantitatively.

And qualitatively and that positivity was that just internal once again this quarter. It was reinforced by the external view. So that one was recognized again this year among the top 50 of granting and the franchise interest in the franchise industry by entrepreneur magazine.

And once again and once again in that ranking we we rated in the top and.

And it's at the top of the tools distribution category a place. We've we've had for some time now this type of recognition reflects fundamental of contemporary contemporary strength of our franchisees and our overall van mobile Van network. It is a powerhouse business and that momentum would not have been achieved without a continuous stream of you.

New products are one of those that helped drive our hand tools up.

Again this quarter.

Again this quarter was our new long nose slipped joint Flyers. This was special tool with our patented 3.3 acquisition joint precisely machine for Evelyn sweetener for for effortless switching and control, allowing the pliers. It allows the cars keep the jaws parallel increasing the contact with the work with the workpiece.

With its indicate it's got a relocated joint optimize handle shape and unique.

Unique talent grip serrated jaws with all of that are new players to provide over 50% more pulling power the machines and hard to keep our sharpened straw and present through different gripping geometries from heavy serration is at the base to find groups at the tips great variability for multiple applications you can apply different parts of the Jordan, it's matter of fact.

They're manufactured right here in Milwaukee factory and their fashion from special Cold Forge Allied steel for greater durability and strength.

As players were launched at the beginning of the past quarter and they've been very well received you know when I talk to the franchisees and if they see they said they are flying off the truck.

And they were right.

The sales have already made a hit product status just did one quarter.

Our offerings are in fact, making a difference in the tools group you can't Miss it in the numbers eight straight quarters above pre pandemic levels. The tools group is moving onward and upward with eye catching momentum and you know if you look at the numbers.

Well spent any time with the team.

Do you believe it's all systems go and it is.

Now onto ours and other sales were up four 6% or $18 2 million versus last year, including $27 4 million or 7% organic 10% organic uplift with double digit growth in under car equipment with diagnostics and information advantage and with the dealership activity flat from an earnings perspective or from my operating income of 95.7.

Ah represents a rise of 9 million or 10, 4% and the operating margin was 23%.

120 basis points over last year.

Compared with 2019 sales were up 19, 5% as reported and the organic growth was 58 million or 16, 8% with strong advances in under car equipment and an improvement in diagnostics and information products for profitability. The Oi margin of 23% was down 200 basis points to 240 basis points versus 2019.

Pretty much reflecting a 100 and a 110 point impact just from acquisitions and the effect of the margin dilutions from the higher sales of under car equipment that we didn't see it.

We believe our F&I as great opportunities and we're fortifying its way forward with new products like our Hoffman six O nine aligner, specifically designed for independent general repair shops, where alignment as you know it's it's not currently a primary focus in our spaces short the new offering allows those all purpose garage to keep the low volume aligned.

When business in house with its compact footprint and and portability kit, enabling easy storage when not in use and efficient deployment went alignment is actually needed. It saves a lot of space, but it gets the job done with our latest <unk> system authoring OEM approved accuracy. The 609 enables the handling of even the most complex huh.

[noise] alignment systems by those general repair shops, it generates a high return on the investment doesn't.

You place space needed for other repairs often needed for other repairs and afford applies the garages reputation for technical capability, it's a great value for the general repair shops, and they're noticing our equipment business has been on a roll with strong double digit equipment growth was double digit quarter for some time in the Hoffman.

609, Aligner is a big player in that mix.

Chris and I.

Ah proving its our position with repair shop owners and managers growth in under car equipment in diagnostics and information projects products and an array of innovative new products and product lines to lead the way.

Well those are the highlights of our quarter tools group strong progress everywhere.

Unmistakable strength C&I recording a positive performance against the variation across industries, and geographies and our C&I expanding profitable volume with repair shop owners and managers snap on overall sales rising markedly both versus last year, and eight 4% organically and up 18, 7% organically compared with.

Pre pandemic level, continuing clear positive trajectory.

Opco operating margin a strong 21, 7% rising again this quarter rising again this quarter up 160 basis points.

EPS of $4 27 up versus last year up versus last quarter and up versus pre pandemic levels. It was an encouraging quarter.

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

Our consolidated operating results are summarized on slide six.

1 billion $136 $6 million for the quarter increased five 1% from 2021 levels, reflecting an eight 4% organic sales gain partially offset by $32 4 million of unfavorable foreign currency translation.

Organic sales gain this quarter reflects high single digit growth in each of the companies segments in Quebec.

Two 8% year over year organic increase recorded last quarter.

All of it a gross margin of 48, 7% remained the same as last quarter, but declined 150 basis points from 52% last year higher material and other costs were partially offset by contributions from the increased sales volumes and pricing actions as well as from benefits from the company's RCI initiatives and 30 basis points of favorable.

Foreign currency effects again this quarter, we believe the corporation through pricing and Archie I actions continued to navigate effectively the costs and other supply chain dynamics of the current environment.

Operating expenses as a percentage of net sales a 27% improved 310 basis points from 31% last year. The improvement was primarily due to higher sales volumes savings from RCI initiatives and lower cost associated with stock based expenses.

Operating earnings from financial services of $246 $6 million in the quarter compared to $217 1 million in 2020 one.

As a percentage of net sales operating margin before financial services of 21, 7% improved 160 basis points from last year and was up 140 basis points sequentially.

Financial services revenue of $86 $4 million in the second quarter of 2022 compared to $86 $9 million last year.

Operating earnings of $65 $3 million decreased $3 6 million from 2021 levels, primarily as a result of higher provisions for credit losses than those recorded last year.

Consolidated operating earnings of $311 9 million compared to $286 million last year as a percentage of revenues. The operating earnings margin of 25, 5% improved 100 basis points from 24, 5% towards the towards the one.

Our second quarter effective income tax rate of 23, 8% compared to 23, 3% last year net.

Net earnings of $231 $5 million or $4.27 per diluted share increased $23 $5 million or 51 cents per share from last year's levels, representing a 13, 6% increase in diluted earnings per share now.

Now, let's turn to our segment results.

Starting with the C&I group on slide seven.

Sales of $359 $1 million increased from $350 5 million last year, reflecting a $25 $3 million or seven 6% organic sales gains.

We offset by $16 7 million of unfavorable foreign currency translation.

Growth, primarily reflects double digit gains in the segment's European based hand tools business and Asia Pacific operations as well as a mid single digit increase in sales to customers in critical industries within critical industries solid gains in general industry and international aviation more than offset lower sales to the military.

Gross margin of 37, 3%, although improving sequentially declined 220 basis points from 39, 5% in the second quarter of 2021.

This is primarily due to higher material and other input costs being partially offset by the benefits from higher sales volumes and pricing actions and savings from the segment's RCI initiatives.

Operating expenses as a percentage of sales of 22, 9% in the quarter improved 80 basis points from 23, 7% in 2021, primarily due to the effects of higher sales volumes.

Operating earnings for the C&I $51 $7 million compared to $55 $5 million last year.

The operating margin of 14, 4% compared to 15, 8% a year ago.

Turning now to slide eight.

Sales in the snap on tools group of $526 million increased seven 5% from $484 $1 billion in 'twenty one.

Selecting a nine 3% organic sales gain partially offset by $7 $7 million of unfavorable foreign currency translation.

The organic sales growth reflects a double digit gain in our U S business at a low single digit increase in our international operations.

In the U S sales were up across all product lines and include a particularly robust sales of full storage in the quarter.

Gross margin of 46% in the quarter compared to 45, 5% in the first quarter of this year, but declined 80 basis points from 46, 8% last year.

The year over year decline is primarily due to higher material and other costs and 10 basis points of unfavorable foreign currency effects, partially offset by benefits from higher sales volumes and pricing actions.

Operating expenses as a percentage of sales of 22, 1% proof or 330 basis points from 25, 4% last year, reflecting the benefits from higher sales volumes and savings from RCI initiatives and including the effects of lower expenses associated with the company's franchisee stock purchase program.

Operating earnings for the snap on tools group of $124 4 million compared to $103 $5 million last year.

The operating margin of 23, 9% improved 250 basis points from 21, 4% a year ago.

Turning to ours and I group shown on slide nine sales of $416 $8 million compared to $398 6 million a year ago, reflecting a 7% organic sales gain partially offset by $9 $2 million of unfavorable foreign currency translation.

You organic gain is comprised of a double digit increase in sales of under car equipment and a low single digit gain in the sale of diagnostic and repair information products to independent shop owners and managers activity with OEM dealerships was essentially flat.

Gross margin of 43, 2% declined 150 basis points from 44, 7% last year. This is primarily due to higher material and other input costs and increased sales and lower gross margin businesses. These declines were partially offset by benefits from pricing actions and savings from RCI initiatives as well as from 50 basis points of favorable.

Foreign currency effects.

Operating expenses as a percentage of sales and 42% improved 270 basis points from 22.9% last year, primarily due to benefits from sales volume leverage including higher activity in lower expense businesses and savings from RCI initiatives.

Operating earnings from the artist that I group of $95 $7 million compared to $86 $7 million last year.

The operating margin of 23% improved 140 basis points from 21, 8% reported a year ago now.

Turning to slide 10.

Revenue from financial services of $86 $4 million included $800000 of unfavorable currency translation compared to $86 $9 million last year.

Financial services operating earnings of $65 $3 million compared to $68 $9 million in 2021.

Services expenses of $21 $1 billion were up $3 $1 million from 2021 levels, mostly due to $2 $4 million of increased provisions for credit losses, while provisions have increased versus the historically lower provision rate experienced last year loan portfolio trends remained stable as a percentage of the app.

Average portfolio financial services expenses were 1% and eight tenths of 1% in the second quarters of 2022 that 2021 respectively.

In both the second quarters of 2022 and 2021, the average yield on finance and contract receivables were 17, 5% in <unk>.

Eight 5% respectively.

Total loan originations of $307 $6 million in the second quarter increased $21.8 million or seven 6% from 2021 levels, reflecting an 11% increase in originations of finance receivables, partially offset by a decrease in the origination of contract receivables move.

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.

60 day, plus delinquency rate of one 4% for U S extended credit is the same as comparable pre pandemic period of 2019 and reflects the seasonal improvement we typically experience in the second quarter.

As it relates to extended credit or finance receivables. The trailing 12 month net losses of $44 million represented 233% of Outstandings at quarter end, which is down slightly from the $2 three 4% reported at the end of last quarter now turning to slide 12.

Cash provided by operating activities of $140 $8 million in the quarter compared to $238 $2 million last year.

The decrease from the second quarter of 2021, primarily reflects an $87.7 million increase in working investment.

The change in working investment dollars is largely driven by greater demand, including increases in receivables and higher levels of inventory this year and.

In addition to demand base requirements. The inventories increase also reflects higher in transit inventory of malls as well as incremental buffer stocks associated with the supply chain dynamics in the current macro environment.

Net cash used by investing activities of $73 8 million included net additions to finance receivables of $53 $5 million and capital expenditures of $21 $3 million.

Net cash used by financing activities of $112 2 million included cash dividends of $75 $7 million and the repurchase of 251000 shares of common stock for $53 $8 million under our existing share repurchase program.

As of quarter end, we had remaining availability to repurchase up to an additional $428 million of common stock under existing authorizations.

Turning to slide 13.

Trade and other accounts receivable increased $46 $8 million from 2021 year end days sales outstanding of 60 days compared to 58 days at 2021 of your own.

Inventories increased to $89 $5 million from 'twenty to 'twenty, one year end and on a trailing 12 month basis inventory turns of $2 seven compared to 2.8 at year end towards the towards the war.

Our quarter end cash position of $812 $9 million compared to $780 million at year end 2021 our net debt to capital ratio of eight 3% compared to nine 1% at year end 2021.

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

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

We anticipate that capital expenditures will be in the range of 90 million to $100 million. In addition, we.

We currently anticipate absent any changes to the west tax legislation that our full year 2022 effective income tax rate will be in the range of $23 24 per cent.

Now I'll turn the call back to Nick for his closing thoughts Nick Thanks outlook.

Well, that's our second quarter.

Markets that are resilient and getting more robust by the day.

These are interesting times and the pandemic inflation supply interruptions of war and pop up lockdown, but snap on brings to this turbulence considerable advantage in product and brand and in people. It's enabled our team to cut through the turbulence continuing a positive direct trajectory and you can see it in the perform.

<unk>.

C&I on a growth path again with a seven 6% organic increase despite being our most impacted business arsenide games with a pair of shop owners and managers driven by hardware and it's expanding information portfolio sales up 7% organically and an oi margin of 23% up 120 basis points from last year.

And the tools group gang.

Gangbusters results sales up nine 3% organically versus last year, and up 28, 1% versus 2019, eight straight quarters above pre pandemic levels and an oi margin.

Of 23.9%.

And it all came together for overall snap on organic growth of eight 4% and Oi margin of 21, 7% and an EPS of $4 27.

All high watermarks, despite the turbulence.

It was an encouraging quarter and we emerged from that period with rising momentum. It is a turbulent time, but snap on is driven by attractive markets by unique strengths and by an experienced and capable team that achieved clear and consistent performance and period by period.

Has become stronger and stronger and navigating the issues of the day and we believe these inherent advantages will continue to prevail as we go forward on a clear and upward trajectory through the remainder of this year and well beyond.

Before I turn the call over the operator, I'll speak directly to our franchisees and associates I know they listen in.

Our corporation as an organization, where people come together to create a benefit for themselves and others that they could not author individually.

You've done just that again this quarter for your success in that endeavor you have my congratulations for the energy and use in the skill you bring to our efforts you have my admiration.

And for the commitment you unfailing Lee demonstrate to our team.

You have my thanks.

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

Thank you could you wish to ask a question at this time, please signal by pressing star one on your telephone keypad. Please ensure the mute function on your telephone is switched off.

But again, please press star one to ask a question.

We can take our first question now from Scott Zimbra N. P. M partners. Please go ahead.

Good morning, and congrats on the very strong results.

Thanks Scott.

Can we talk about tools you mentioned that.

Everything was up and it sounded like tool storage had another very strong quarter was that related to the the new mobile card and maybe just Joe just trying to size up how big you know tools storage was in the quarter.

Trying to figure out I don't like to get in.

I think it's you help you if you start worrying too much about quarter to quarter. Scott Scott you go here can you pick any rule around here you know about because things change depending on the on the models you bring out but I'll say that tool storage was the leader it was double digits.

A nice quarter and it.

You know.

And a factor so what's happening. This time is we started to get more of the bigger the bigger boxes out you know the epic and the Masters series you know we had some we had some great new offerings are Super Nova Master series with the electric Blue and the copper shrimp that seem to be very popular.

So it was it was a great quarter carts, where we're continuing to be strong, but epic you know the bigger boxes that the the the regular tool storage box, which we called <unk> as well.

That made the difference so it was a it was a pretty good quarter you know the tools group really I mean, I think I think it did it did.

Have a great quarter by the way did I mention that the tools group.

Oh, why our margin was 23, 9% in the quarter.

I think.

That was that was I think that says it all I would tell you and by the way in the court and tools were already were also up.

You know like also that was that's a that's a nice nice factor for us up strongly.

But the big quarter.

I'm sorry.

Oh go ahead go ahead I was going to ask you about the sell in to the van and offer them. The inventory situation right now on the Vim, Yeah look it seems like the.

Inventories are up but they're the guys a client for more inventory when I go out there and there and their inventory turns are substantially below pre pandemic levels. You know so so the inventory turns are higher at this time I'm not below pre pandemic levels that are above pre pandemic levels. So they're substantially higher at this time, you know and you know this.

Sell through was better this quarter than it was last quarter you know when you look at it overall.

It seems to be right in line with the with our overall sales. So we think it's moving.

Moving along nicely I do believe our guys want more inventory.

I do believe they want more you know and and I would say in our in our businesses. There's still you know we've got a little better at delivering but we still like you know we still have a pretty good backlog people are clamoring for a product still.

Right.

Got it and then lastly on <unk> you talked about under car doing really well is that related to the collision part of the business or is that just across the board.

Yeah, well, it's across the board, but the collision business has been a star you know in the city.

We acquired car O liner of two years ago, and we anticipated that collision with the with the deployment of our <unk>.

The neural network around the around the the sensors around the sort of driver assist systems would make collision a very lucrative area and it seems to have played out so collision is among the top or under car equipment, but generally it's all rolled pretty well.

The independent repair shops are optimistic.

They're seeing the well I've said it in my call you know.

Investment spending up technicians up wages up they can see it all coming through so they're they're they're white hot in terms of their optimism in terms of the situations don't get them to invest more that's what youre seeing in under car equipment.

Got it thanks for taking my questions.

Yeah.

Okay.

Yeah.

And we can now take our next question from Luke junk of Baird. Please go ahead.

Good morning, Thanks for taking the questions first wanted to ask about originations. It swung positive this quarter up nicely both year on year in a really strong sequentially. Following some fits and starts recently can you just give us a peek under the hood. There in terms of what's driving that do you think it's sustainable and what if any impact did last quarter says.

Breach have on the numbers this quarter.

Last quarter I don't think had any impact on this quarter, but it was mostly in the last quarter, where you saw it might've had some impact on originations because last quarter you use from us.

From a sales point of view there was a skewing towards the back end of the quarter because of the breach was in the early parts of the quarter. So you saw that going out and as I said last time, we thought we had pretty robust sales and some of the big ticket items, but they hadn't made their way through the vans, yet necessarily and that probably worked out this quarter I think the big driver there.

So little kids is the product I think you know the optimism of the technicians.

And in the product itself I think what does drive originations is the view of people, saying Wow you know I really like these these.

These epic boxes, I got them and we had them more available now we're getting better at delivering them. During the pandemic you had some fits and starts so we're pushing it a little more cards and now we have now we have a little bit more of the basic roll cab. So I think that's what drove the higher originations and this time, we still see you know a pretty good are a you know the.

The the financed by the by the franchisees seems pretty solid that wasn't down and of course. So that's that was pretty strong as I said handfuls were up so I think it's pretty much <unk>.

<unk> is really what you see in the tools group I mean, the tools group is on a pretty big momentum if you look back.

Over the pre pandemic levels, they're up 9% what was that Q4 2020 that 15 and 17 in 'twenty, one and 'twenty. Two then 24 and 28% this quarter and by the way they came through the quarter. They exited the quarter strong there on the mall train.

You've got momentum rolling.

And so I feel pretty good about that and that's playing out and some of it you know.

Now broader product lines and in tool storage, we did as I said in our last call that that doesn't mean that our that our cards were down and they were they were still strong in the quarter just at the the roll cabs got bigger.

Okay.

That's very helpful. Thanks for that Nick and then a second question within our F&I Oh, that's gone under car equipment again, it's been an area of consistent strength in that business going all the way back to the start of 2021 we count six straight quarters of double digit growth overall, where do you think we are in the investment cycle, there realizing that that growth.

From titles, where we sold updates we call them titles, but they're basically updates on software every six months, we're pivoting to a subscription business. So that tends to stretch out your revenue was a little bit of it affects your revenues in a quarter and so but our subscriptions are up deep our subscribers are up.

Deep double digits in this quarter year over year, so that seems to be working for us. So we are pretty pumped about the possibilities in that but you know you have some you have some you have some I guess I would say recognition questions. As you go through this period. So we don't quite see it coming through but I can see it coming through in the future.

And as I said I.

With with the array of electronic products, we have around software you know from.

From the diagnostic software to the Mitchell one software to dealer FX to electronic parts catalog to the vehicle checks.

We feel we are repair information headquarters and it's going to become bigger and we're going to see it roll through that business earlier now if you ask me do I expect to see the equipment business attenuate I hope not.

I'm not hope I'd point, you just because it's a low margin doesn't seem it doesn't mean I don't want the profits I don't yeah, So and I could see that go that was down for you might remember it was down it was pretty much flat on its back for a couple of quarters. A couple three quarters earlier and it's bouncing back from that we've seen a lot in the independent repair shops, and I would figure after.

The dealership start to get used to this situation I think theres, a little discombobulated by by the low supply and what are they doing associated with this sort of a little bit little more reluctant in this situation when they come online I think that will be even greater.

Okay.

And then if I could just sneak one more in maybe this one would be good for Aldo to tackle a could you just remind us of how rising interest rates affect the credit company both in terms of.

Funding if at all in the rates that you charge in particular, just wondering if there's anything that you think is misperceived that you'd want to address that a rising interest rate environment. Thanks.

Oh, Thanks for the question look I actually got a little effect, if anything it might create a more favorable environment and why do I say that again, we fun long. So if you look at snap on the balance sheet. So we'd all the fun day to day, so the rising interest rates do.

Do not have a foreseeable immediate impact on our borrowing capability because as you can see there's plenty of cash on the balance sheet. There's nothing that's coming due for quite some time. So we're stable in terms of the cost of our funds going into that business.

Our stated rates are have been pretty consistent really for a decade, plus so they're not the lowest rate out there, but they're lower than what might be available to people that are on a credit card format and things of that nature. So we think our rates are appropriate for the credit profile of the customers that we serve we think that they those types of customers recognize that so.

What are the kind of the lender of choice if they do decide to engage in any type of lending activity.

And I think because we provide that stability that gives a little little form of reassurance. So as interest rates go up.

Competitors' rates, if they were ever considering them and when I say competitors I think are the things like credit cards, because interest rates are going to be going up for people that are in the subprime category. So we're going to be pretty stable and our approach is going to be pretty consistent yet I think the competition's rates might be going up which you could argue maybe creates a slight.

The more favorable environment.

Yes.

Okay I will leave it there. Thank you for all the color this morning.

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

Hey, good morning, guys.

Alright.

When do you think about the organic growth that obviously gets pretty inflationary environment could you talk about sort of what the contribution from units.

Our versus the contribution from price and then I guess as a follow up I think humans.

I'll ask that first.

As a follow up what.

The follow up I think you called out I think it is C&I and Rs and I sort of inflation in some of the cost of goods and could you sort of talk about where you are seeing is that metals labor, you know, where you're seeing inflation and what you can do to sort of pass that through and the timing of that.

No by the way, it's just a I have a better before the tools group will execute social guys will execute me if I leave. This this this conference calls not saying that Hey, you also have inflationary impacts on prices going up so it's not just our F&I and C&I. They also have to deal with that and I got to give them credit for that but look here's the thing.

Hard for us to determine because.

You know, we know we have some pricing, but it isn't the majority of it you know looking at our factories. We know we have we have products in demand or rolling off there and our guys are up to their eyeballs and demand. So we know that that's a that's a positive situation. The other thing is it's hard because we have list prices, but the list prices that don't aren't you know are very from <unk>.

The products and they come out on an average you might say youre raising sales three 5% or something like that but it's quite a surprise and then overlaying on top of that we have a lot of new tools, we keep rolling new tool and $5 million tools. We have we have we have we have.

Dozens of quarter Rolling out and then.

Across the network and then we have promotions that occur a week to week and they can be lean or rich and taken up the big effects. So it's hard for us to say I would say the minority of the increases in pricing and the majority is in is in is in volume for US. We think that's the situation in this situation and in our <unk>.

<unk> now that varies from group to group and so on now to talk about where we're getting the biggest impact I think is inflationary and Curt Brett is trying to buy on the spot market. Because we've said we wanted to deliver the best we can when we have demand we wanted to deliver we're not keeping up with all of the demand, but so we're buying like chips on a spot market and I can go that can fluctuate why.

When we buy components for power tools and other things on a spot market.

That can move wildly if you look at commodities I would say look we buy several many grades of steel, but if you look at steel for tool storage and steep steel for let's say lifts.

Hot rolled and cold rolled.

We're both coming off a little bit they're getting a little better theyre coming down if you look at steel for hand tools. It's at its top left and right now there is still not back to the steady state levels, but they've backed off a little bit.

The steel for hand tools, which we close Raj deal that's pretty much reached the top level and it's flattened out, but it hasnt abated for us yet and we're not seeing too much abatements and freight and so you see those kinds of things flowing through I would expect this stuff as I believe that as the Covid turbulence starts the micro viscosity start.

Stop happening you're going to see this stuff start to drift downwards, because youre not going to have the interruptions in supply and therefore, it's going to get more regular and therefore, the prices are going to come down, but I don't have a crystal ball on that.

That's sort of our view of the situation.

Okay. If you were to think about your price inflation.

Your sticker price inflation year to date, you know I guess, how would you is it.

Mid low mid single digits on pricing.

You know, it's hard for me to say because it changes so it's all over the map depending on where you are in the tools group you have a list price and the other places youre pricing product by product and it depends on the size of the product you know and a lot of different things. So I'm. All I'm, saying is I think if you wanted to step back and you look at our pricing it is.

The minority of our growth.

Okay, great. Thank you.

Mostly get share get volume out of it okay.

And we can now take our next question from Christopher Glynn of Oppenheimer. Please go ahead.

Hey, Thanks, good morning.

So Chris no.

Hey, some pretty strong comments on the momentum in our tenure across the tools group.

I did want to drill down into that in terms of.

We.

The relative contribution Xu.

Hum market penetration and overall kind of advancing into technicians, not traditionally served versus revenue per technician type of.

Equation.

Yeah, we don't have it it's hard for us to get a handle on all of that because you tend to start out with people at lower levels, but we are adding technicians I can't parse the thing for you. We're certainly aiming at that and it's been successful, but we're also selling more to the existing technicians because their wages are going up there.

Getting more optimistic.

It's not a situation, where we see statics static static activities I will say the number of technicians, we have on the books are going up.

And that includes some new people some new people. So that's about all I can give you on that I think there are both things in play in Q1.

Because of the optimists and it makes sense I just want to add this is because it makes sense because we believe.

It's great for us to get new technicians, and that's that's a one component of growth that I've talked about for a dog's age here, but it's also in this environment clear that existing technicians young or old are going to need new products and they're actually going to need more a greater array of these products as you get more.

We're more in different powertrain as you get more of these are these are these are you know these automated features in the system. So we anticipate both effects being lucrative forward motion so be it would be wrong to think that either one of you know either one was maybe yeah.

They think that they werent both good avenues for growth.

That makes sense, yeah, it was kind of.

Men, particularly drilling to the expanding the check.

And then on <unk>.

He and I.

Clearly a stronger core year over year and sequentially versus kind of the trends we've seen in the past few quarters.

With a little more kind of stable steady so I'm wondering if you a sense of.

Things getting rolling there versus you know you kind of got a bit more out the door this quarter.

Oh, no I don't well, we'd like to think we got a bit more out the door, but I don't think that's it I think I think look I think we're making a little bit penetration as I tried to say in our remarks, we're getting better at handling the turbulence.

You know I like to say, we're not as dumb as we look at a lot of people would say that would be impossible, but but but but you know we're kind of learn and quarter by quarter and C&I has the longest learning curve because they had the most impact of all this stuff that's happening I mean, she is in Shanghai now there's the one thing by the way we were up in Asia and C&I.

So they did pretty well in that regard so what we're seeing is.

We're seeing our ability to manage the turbulence better. We're also seeing some warming like in this quarter one of the things I was very encouraged by is that the military.

It wasn't down as much in the quarter the military is kind of coming back.

It's still down you know what I mean, I'm still I don't like it but it's still it's coming back so it wasn't as big of a hole this quarter as it has been in the past and also general industry. I Hope you saw that comment general industry was up and and and and in aviation and in total was up particularly international aviation believe it or not so so general industry, which.

Implies the widest category for us in terms of that that has so many different segments and that was up strongly so I kind of think the critical industries are common getting stronger recovering from the impact. So we feel pretty good about that in our business that are getting better.

Now that's why we were particularly pleased about this the seven 6% growth.

And C&I you know that that made us that gave us great encouragement and in reality. The 14, 4% yeah. It was down 140 basis points year over year, but you know a 14, 4% aint chopped liver for C&I, it's not so bad and it was up a 100 basis points versus last quarter and.

Versus last quarter end and down 20 versus 19 against a pretty.

Severe impacts of acquisitions and and currency I think was 80 basis points. So those data points were pretty good for US we were encouraged but.

Yeah.

Great. Thanks for the color.

Sure.

And we can now take our next question from Gary Christina Barrington Research. Please go ahead.

Hey, good morning, everyone.

Gary how are you.

Oh, I am just wanting things.

Just a question as it evolves with all the hybrids and electric vehicles that are starting to come into the car park or had been in the core patent for years now.

With your products out there right now or are you seeing demand from technicians for specific hand tools.

More diagnostic and calibration tools.

In the repair at these kind of vehicles.

I think you see more demand for the diagnostic but you also see the hand tools I think you know if you look at the you know they are in the car park, but.

They are if you look at it's one thing to look at it versus the sales. If you look at them in the car park it gets to be pretty thin.

You know you're not seeing not that many garages are seeing a lot of them.

So the guys are talking to us about this and we sell hand tools and we sell some diagnostics that you have it's not a special diagnostic for them, but it's a diagnostic that would have the capabilities to deal with those things. So you're not seeing there's still pretty thinly distributed across unless maybe you're in a southern California or something like that or maybe New York City.

You might see some of those garages, but we're not seeing huge demand, mostly we're getting ready for what we think will be the demand going forward. We think this is gonna be a tidal wave you know and so that's one of the reasons why we acquired dealer FX to get a look at these things.

Yeah.

Okay.

Thank you sure.

Okay.

We can now take our next question from Ivan.

Tigress financial partners. Please go ahead.

Alright, Thank you for taking my questions congratulations on another great quarter and the great results.

Yeah.

When you were talking about like are you bring out a new tool and it sold out pretty quickly how fast can you ramp up is it because you didn't anticipate the demand would be so strong.

You see them still dealing with shortages.

How quickly can you ramp up for another production run.

Okay.

I would say, we didn't expect it to be that big.

You know this one this one there's a couple of life you know of course. This is an earnings call. So I picked some of the ringers, you know and I put them on it but but but the thing is is that those guys blew out the doors and we didn't anticipate it being that good otherwise, we would've we would've done a bigger Iran.

Again with so that's the situation just as demand was really high now on top of that I will tell you that we believe we need more capacity because we have demand. So were looking at that situation wise, you know and we will have to go back and try to scheduled another run in a handful of plants, which is already overscheduled, but we'll try to put that in and roll out with some more.

Obviously, though you know if you're if you're doing that I mean, the reason why we're running a handful of planes and they got a lot of demand. So so.

So we see ourselves as sitting on.

Some further opportunities if we can just roll out more product.

And we're working on it.

In terms of expanding the plant we have an expansion plan for our Milwaukee handfuls plants, which where this place was built.

And then as your other franchisees interact with.

Mechanics, what kind of feedback what discussions are they having about preparing to ramp up for new tools to handle the Tvs that are.

At some point.

Look I think I think you know, they're having there havent talks about that but generally you know youre talking about insulated till somebody obvious stuff like some diagnostics up some insulated tools. Some some lift tables for the batteries those kinds of things and then what'll happen Ivan is the mechanics don't know yet.

What they don't know you know what I mean about preparing them to those those new cars get into the dealerships and the mechanics will discover where they need new tools to deal with it that's a whole other level of array. So we're talking right now about the common things that you know you might you you observe from from early days from.

The you hear from the Oems or you see the very very very early days and the OEM garages and those are the things that I just talked about like insulated tools and some diagnostics. Some analysis routines and also some lift tables and other stuff around electric vehicles, and then you're gonna here as this is a guy start repairing them.

Say geez you know these particular vehicles are different I need a special tool to do this and that's where we start rolling out our activity. We start building more tools to match that that's a whole other array and that's one of the thing really takes off for us.

And then I assume you're going to need some kind of new types of lives to handle the access or battery swapping because of the way.

All true so true.

I didn't mention that but that's right that's right yeah that that.

Recently I didn't mentioned is handled by another division, but you know that that's also true a lot of this stuff is going on with your equipment. The equipment. The whole equipment line that doesn't go through the vans is a whole other issue that is going to need new stuff. Because these things are heavy a hybrid as you know are excellent.

Okay.

Well I guess then the same thing is going to hold true for undercarriage and collision because the way the UBS restructured.

And the way you have to repair them around the battery and the whole structure eventually.

To be a huge upgrade cycle for undercarriage and collision right.

Correct correct you got it that's right I mean, the batteries are you know before I E. I think most people don't realize how heavy of these batteries are actually.

There's a lot of weight underneath that and that chassis. These days. So so it's gonna be a it's going to be an interesting it's going to revolutionize garages I believe as things go out and and again I want to point out that the Oems will you know we'll figure this out early but then there'll be a lot of unforeseen complications that change it again after your first one.

Dave have changed so we're pretty pumped that's why I say, we're entering the golden age of car repair.

Yes, very exciting congratulations again and look forward to ongoing success.

Okay. Thank you.

Yeah.

This concludes the Q&A session I would now like to hand, the call back to you for 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.

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