Q3 2022 Snap-On Inc Earnings Call
Oh.
Right.
Yes.
Okay.
Hello, and welcome today's snap on incorporated third quarter 2022 results Conference call. My name is Caroline and that'll be a coordinator for today's event. Please note. This call is being recorded for the duration of the call.
Your lines will be on listen only mode. However, you will have an opportunity to ask for questions at the end of the call. This can be done by pressing star one on your telephone keypad to register your questions.
If you require assistance at any point, please press star zero and you'll be connected to an operator I will now hand over the call to your host Sara Watzke.
To begin the conference. Thank you.
Thank you Caroline and good morning, everyone. Thank you for joining us today to review snap on third quarter results, which are detailed in our press release issued earlier. This morning, we have on the call today Nexsan, Chuck Snap ons, Chief Executive Officer, and although probably Ari snap ons, Chief Financial Officer, Nick will kick off a cliff.
And with his perspective 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've provided slides to supplement our discussion these.
This can be accessed under the downloads tab in the webcast viewer.
All of this on our website snap on Dot com.
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 discuss management's or the company's outlook plans or projections are forward looking statements.
For materially from those made in such statements additional information and the factors that could cause our results to differ materially from those in the forward looking statements are contained in our SEC filings.
This presentation includes non-GAAP measures of financial performance, which are not meant to be considered in isolation or as a substitute for their GAAP counterparts. Additional information 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 Chuck Nick Thanks, Sarah.
Good morning, everybody.
As usual I will start the call by covering the highlights.
I'll give you an update on the environment and the trends, we see I'll take you through some of the turbulence we've encountered.
Okay.
Okay.
Provide a more detail.
You've got a better gig CLO dollar tree.
Apparently they were unhappy with them, leaving events story of the snap on core apparently be absolute crosstalk, where ear to ear.
Story of the snap encore.
Its momentum overcoming challenges.
Momentum rooted in the resilience of our market the capability of our team.
And the tactical and strategic advantage in our products, our brand and our model all coming together to create considerable.
Ongoing strikes.
It affected third quarter once again demonstrated our ability to continue our trajectory of positive results. Despite the headwinds in the numbers.
Say itself.
Our reported sales in the quarter of 1 billion one of our $2 5 million were up $64 8 million or six 2% versus last year, including $39 1 million of unfavorable foreign currency organic sales grew 10, 4% with gains in every group, our ninth straight quarter of year over year expand.
And if you compare it to the pre pandemic levels of 2029.
2019.
Do you see a clear and unmistakable upward drive versus 2019 sales were up 22, 3% as reported and 22, 8% organically continuing our positive trend and accelerating our expansion demonstrating that we are only getting stronger every day.
I did say momentum.
The quarter also bears the mark of snap on value creation processes safety quality customer connection innovation and rapid continuous improvement or RCI. Once again, they all combined to offer significant progress the progress of what Opco operating income of $223 5 billion increased $22 2 million from last year.
Operating margin was 23% up 90 basis points from last year, and rising 170 basis points or 2019.
For financial services operating income up $66 4 million compared to the $70 6 million last year, a decrease reflecting the forecast a return to more usual provision levels that result, combined with Opco for a consolidated margin of 24, 4% up 20 basis points from last year at 120.
At 120 basis point improvement from 2019.
Quarterly EPS.
It was $4 or 14, six rising 16% over the $3, 57% from a year ago and 39, 9% over the 290 to $2, 96% recorded in 2019, a significant gain.
I've said, it before and I'll say it again, we believe snap on is stronger now than when we entered this great weather in the third quarter results are unmistakable copper makes a lot of that back.
Well those are the numbers that I'll speak about the markets.
In order to repair continues to remain strong the key metrics are all favorable spending on vehicle maintenance and repair the vehicle technician count and technician wages up up and up again.
So wonder if so wonder the repair industry is resilient repair spending is rising the cars are more complex they need more repair than it cost more the technician count is at its highest point in three decades and shop owners keeps telling me they need more.
Many more.
Wages continue to grow in Italy.
They simply reflect the increased demand for the skills.
That are now necessary to complete critical critical repair cat, it's never been more evident that repairing a modern vehicle with a new technology, that's difficult. It's an exercise of extraordinary skill and our salaries are rising to show it.
Okay.
Okay.
Auto repair is resilient when I meet up with the people that shop as I, often do our franchisees our technician customers you can feel the exploration in the now and their confidence in the future and they're making sure. They can participate in that future by being ready with the tools they need.
Vehicle repair, it's a space filled with opportunity you can hear it in the optimism and the voices shop and you can see it clearly confirmed and snap ons performance.
But it's not just the tax shop owners are also a big shop owners and managers are also big players and the rise of repairing and our repair systems systems and information group of Arts and is positioned to take advantage everybody knows that cars are scarce new Andrews.
For snap on that doesn't matter.
Repair and collision shops are busy.
It's a tool we like very much and it's evident in the rising sales of our under car equipment in collision businesses both strong.
Is that repair shop today, you see a bright future with changing technologies and you want to be ready.
New vehicles are being released with a greater variety of drivetrain than ever from internal combustion engines to hybrid plug in electric the full electric and a range of options is growing more driver assist more vehicle automation, increasing vehicle complexity and we're ready to help the repair shops keep pace with powerful products like are a range of.
Fast track intelligent diagnostics, the Zeus the Triton the Apollo handheld, enabling repair at all levels like our celebrated Mitchell one pro demand repair information Our award winning proof point advanced driver assistant calibration system and our three D alignment systems like the the new Hoffman G liner, all representing new technologies and all wielding big.
Database is deployed to make work easier in the shop vehicles vehicle repair looks more promising than ever.
And snap ons positioned to capitalize.
Now, let's talk about the critical industries, where the snap on roles are the snap on brand rolls out of the garage solving tasks of car.
<unk>.
This is where our commercial industrial C&I operates with a broadest region into international markets and with the the locations impacted the most by the challenges of the day.
I mean C&I is headwind headquarters.
Fly changes auction rising rising commodity costs on certain fuel supply currency fluctuations, continuing COVID-19 locked up troubled economies and warm in Ukraine for C&I had at all.
But it rose to the occasion and in the quarter.
The group took some some lumps in Europe , but overcame with strong gains in North America and in Asia. Despite the difficulties and while the military sector is still down C&I is critical industries. The others. Other C&I critical industries are all showing life. So I describe our C&I markets is challenged in certain geographies, but demonstrating.
<unk> gains and having strong enough and ongoing possibilities going forward and coupled with our auto repair related businesses businesses. We believe there is clear and compelling opportunity along our runways for growth enhancing the van network, expanding with repair shop owners and managers extending to critical industries and building in emerging markets and in the quarter.
We've seen that potential pay off nicely.
At the same time, it's clear that we have up ongoing possibilities on our runways for improvement the snap on value creation processes, they've never been more important helping to counter the turbulence of the day, especially important is with customer connection understanding the work of professional technicians and innovation matching that insight with.
With technology driving new products.
And the just.
Just this quarter snap on was prominently recognized with five P 10 professional tools and equipment News Innovation Awards and we were also honored with two motor magazine top.
Top tool awards and a central driver of our growth is the innovative products that make work easier.
And the awards hard won.
Our testimony that great snap on products, just keep common matching the growing complexity of the task, becoming more central techniques to technicians and driving our positive results.
Now, let's turn to the segments in.
In the C&I group sales in the quarter of $356 8 million were up one 5%.
Or $5 4 million.
One, 5% or $5 4 million as reported versus 2021, including a $26 2 million or seven 9% organic uplift operating progress across all divisions.
Which was offset partially by $20 8 million and unfavorable foreign currency.
From an earnings perspective, C&I operating income of $52 3 million, including $2 1 million of unfavorable currency represents a decrease of $1 3 million compared to 21, the effects of volume gains were more than offset by the substantial impact of currency and by supply chain inefficiencies. The Oi margin was 14, 7% down from.
Last year, but still representing representing the highest level.
Since the rise of the significant supply turbulence.
Compared with the pre pandemic level sales were up 7.7 organically and the Oi margin of 14, eight 7% was up 30 basis points. Despite a 60 basis point negative impact of acquisitions and unfavorable currency.
So we remain committed to extending in critical industries, the C&I sweet spot and we will keep strengthening our position to capture those opportunities as they arise.
And enabling that intent.
It is our expanding C&I lineup of innovative products designed specifically to make critical work easier. One example is our brushless Ctr 90, 15, 18 volt drill so newest member of our Monster lithium family aimed at industrial manufacturing and repair professionals, enabling work with the toughest materials.
170 inch pounds of torque enough to handle even hardened alloys 2000, RPM speed to get the jobs done quickly and with heavy duty with the with the heavy duty gearing in the enhanced calling this tool is rugged durable even in extreme use.
The 915 also offers eight and 18 speed clutch, a variable speed trigger and push speed gearbox all the parts all all for precise control.
A feature that's.
<unk> for serious drilling for professional drilling and the 18 volt battery with a five year powers ensures consistent output and extended run time in effect less charging for a more efficient workday towards also fitted with a 100 lumen had 100 lumen headlight, helping technician work, helping technicians work in dark environments, just what's new.
<unk> for those those close up jobs.
The <unk> 90, 915, it's got power speed precision and durability, it's a great tool and a text knowing they've already made the new drill in one of our million dollar hit products.
Well, that's C&I continued progress against the turbulence now onto the tools group. The team just keeps driving upward, leaving the pre pandemic levels behind by a wide by wider distance every quarter sales of $496 6 million or up $25 2 million or five.
3% over 2021 organic growth of $34 1 million or seven 4%, partially offset by $8 9 million of unfavorable foreign currency.
The operating margin was 26% down slightly 20 basis points, but overcoming oh 40 basis points of unfavorable foreign currency compared with pre virus 2019 sales were $111 4 million or 28, 9%, including a $113 million or 29, 5%.
29, 5% organic gain this.
And this quarter is 26% operating margin was up 680 basis points versus 2019 coming out of the pandemic stronger.
<unk>.
It shows group is responding to the challenges of the day, increasing its product advantage fortifying its brands further enabling the franchisees guiding them to more more selling capacity and it's all working.
You can witness it in any time you meet the franchisees.
Big opportunity for that as our as our annual snap on franchisee conference. Our SFC held this year at the Gaylord Texan Hotel in Dallas. The theme was breaking barriers with a reminder of our record franchisee performance driving ever upward over the last nine quarters and its a recognition of a clear opportunity to reach even greater heights going forward almost.
Yes, almost 8000 individuals attended and I can tell you they were pumped excited.
Excited by the by the products, where the street football fields of our latest offerings were on display all available for viewing handling and ordering.
In order they did.
Setting new records the weekend. The weekend also offered a variety of training seminars, where franchisees were able to sharpen and expand their skills to selling the full range of our complex and broad product lines and important movement. We stay we're working to expand the selling capacities are advanced while he SFC is a big part of that effort and.
Dallas was another great step forward to that end.
You can bet you can bet on it our entire team to part of this year's this year's get together in Dallas educated energized and eager to extend the snap on different reaching new individual and collective levels of success throughout the days to come.
They left excited.
And strong.
The Dallas SFC will lead to breaking barriers the franchisees enthusiasm for their for their businesses and their confidence in their future will make it so.
During the SFC the tools group presented the newest edition to the snap on Ratchet lineup. Our F. L. L X 80, a three inch drive extra long walking flex head ratchet.
This new innovation and provides easy access to superior returning power our patented dual 80 technology makes it stronger and the 20 inch length. The longest in the category provides even greater.
That's great ability to reach deeper in a crowded space is extending our reach and increasing leverages. Its a great addition to any toolbox and as an added bonus the new patent pending self cleaning feature vanishes dirt and grime, ensuring that the flex head locks firmly in place at even at any angle even <unk>.
Under a high high stress applications. The X 80, as a special offering access leverage in stability and one ratchet. The initial launch exceeded $1 million of to hit product and sales and volume continues to move forward upward on a steep trajectory.
Beyond product.
We spend time working to expand the franchisees selling capacity harnessing social media improvement Nordic training RCI in Nevada operations, it's been effective.
Yes, it is really on the rise.
And you can see it in the results.
The tools group is on a very positive trend.
Sending and leaving pre pandemic levels, well behind and as we said in the SFC, it's breaking your various barriers right now and we believe it will all continue.
Now onto our F&I.
We're 400.
Sales of $414 million were up 49 six.
Our 13, 6%, including 60.8 of $60 8 million or 17, 2% organic uplift.
Growth was weighted toward under car equipment and sales to the OEM dealerships, but our information and diagnostics business. We're also players and the year over year improvement RPI Arsenite operating earnings.
$95 4 million, representing a 12 $12 $1 million increase versus 2021, and the operating margin was up 10 basis points from last year to 23%.
Compared with 2019 sales grew 91 3 million or <unk>.
Okay.
Including an $86 million or 27, 2% organic gain.
Operating margin was down 280 basis points versus versus 2019, primarily reflecting the business mix and the acquisitions, but at 23%.
It was still strong.
We see significant potential in our in our size runways for growth expanding snap ons presence in the garage with coherent acquisitions and with a broad array of powerful product and the industry experts feel the same.
Our trained <unk> fast track intelligent diagnostic unit was just selected.
<unk> talked to reward it rightly so.
The trend is ideal for shop owners or for general technicians. It provides a comprehensive system verification to identify trouble there troubled areas intuitive diagnostic diagnostic testing to pinpoint repair actions and a powerful lab sculpt confirmed component level punctuality functionality all in one package the tenant van.
Scoping.
The terms of the advanced scoping capability helps users dig deep into vehicle systems and evaluate performance with a comparative data.
It's fast track intelligent diagnostics greatly short cut the work and streamlines.
Repair processes, making shops more productive.
Prop.
Unit also offers a rugged hardware explicitly designed for for you to expect this from snap on unit also offers a rugged hardware fix.
Explicitly designed for for shop environments top shop environments, a superfast to second Buda.
Boot up in a 10 inch touch screen. It all comes together for unprecedented reliability and speed and ease of use.
I'm, telling you the technicians will tell you, it's a platform product and with the selection of the Detroit Motor magazine.
With the selection of the trait.
The magazine.
Nice snap on diagnostic units in 22 of the last 23 years.
22 of the last 23 years.
We believe it's more testimony that our C&I, it's stronger than ever and shops and dealerships.
Well, that's the highlights for our quarter tools group strong progress C&I reporting a positive performance in an upward trajectory against the variations across industries and geographies and.
Expanding profitable volume and with repair shop owners and managers snap on overall sales rising again, 10, 4% and 22, 8% organically versus last year and the pre pandemic level, respectively, continuing clear and positive growth optical operating margins a robust 43% rising again.
This quarter up 90 basis points, EPS $4.14 up versus last year and accelerated well beyond pre pandemic levels.
It was another encouraging quarter.
Now I'll turn the call over to Allo allo. Thanks, Nick.
Our consolidated operating results are summarized on slide six net sales of $1 billion $102 $5 million in the quarter increased six 2% from 2021 levels reflected a 10, 4% organic sales gain partially offset by $39 1 million of unfavorable foreign currency translation.
<unk> sales gain this quarter reflects high single digit growth in both the snap on tools group and the commercial industrial group and double digit gains in the repair systems and information group. This growth compares to the eight 4% year over year organic increase recorded last quarter.
From a geographic perspective continued sales strength in the United States and several emerging markets more than offset weaker demand in Europe .
Holiday to gross margin of 48, 3% declined 190 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 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 RCI actions continued to navigate effectively the cost and other supply chain dynamics of the current environment operating expenses as a percentage of net sales a 28%.
280 basis points from 38% last year. The improvement is primarily due to sales volume leverage and savings from RCI initiatives.
Operating earnings before financial services of $223 5 million in the quarter compared to $201 $3 million in 2021 as a percentage of net sales operating margin before financial services of 23% improved 90 basis points from last year.
Financial services revenue of $87 3 million in the third quarter of 2022 was unchanged from last year operating earnings of $66 $4 million decreased $4 $2 million from 2021 levels, primarily as a result of higher provisions for credit losses than those recorded last year.
Consolidated operating earnings of $289 9 million compared to $271 $9 million last year as a percentage of revenues. The operating earnings margin of 24, 4% compared to 44, 2% in 2021, our third quarter effective income tax rate of 21, 6% compared to 23, 7% last year.
The lower rate in the quarter was primarily due to tax benefits realized from the favorable settlements of income tax audits.
Net earnings of $223 9 million or $4.14 per diluted share increased $27 7 million or 57 per share from last year's levels, representing a 16% increase in diluted earnings per share.
Now, let's turn to our segment results sorry.
Starting with C&I group on slide seven.
Sales of $356 8 million increase from $351 $4 million last year, reflecting a $26 2 million or seven 9% organic sales gain partially offset by $20 8 million of unfavorable foreign currency translation.
The organic growth primarily reflects double digit gains in the segment's Asia Pacific operations, and specialty torque business as well as a low single digit increase in sales to customers in critical industries lower activity with the military was more than offset by gains at aviation mining power generation as well as in oil and gas.
Gross margin of 36, 9% declined 130 basis points from 38, 2% in the third quarter of 2021. This was primarily due to increased material and other input cost partially offset by benefits from the higher sales volumes and pricing actions and 20 basis points of favorable foreign currency effects.
Operating expenses as a percentage of sales of 22, 2% in the quarter improved 70 basis points from 22, 9% in 2021, primarily due to the effects of sales volume leverage.
Operating earnings for the C&I segment of $52 3 million compared to $53 $6 million last year, the operating margin of 14, 7% compared to 15, 3% a year ago.
Turning now to slide eight.
Sales in the snap on tools group of $496 6 million increased five 3% from $471 $4 million in 2021, reflecting a seven 4% organic sales gain partially offset by $8 9 million of unfavorable foreign currency translation. The organic sales growth reflects a high <unk>.
Double digit gain in our U S business, which was partially offset by a low single digit decrease in our international operations, the latter largely reflecting weakness in the United Kingdom.
Gross margin of 44, 9% in the quarter declined 90 basis points from 45, 8% last year the year over year decrease was primarily due to higher material and other costs at 40 basis points of unfavorable foreign currency effects, partially offset by benefits from increased sales volumes and the pricing actions.
Operating expenses as a percentage of sales of 24, 3% improved 70 basis points from 25% last year, reflecting the benefits from higher sales volumes and savings from RCI initiatives.
Operating earnings for the snap on tools group of $102 2 million compared to $98 $2 million last year, the operating margin of 26% compared to 28% in 2021, that's a 13, 8% in the pre pandemic third quarter of 2019.
Turning to the <unk> group shown on slide nine.
Sales of $414 million compared to $364 $4 million, a year ago, reflecting a 17, 2% organic sales gain partially offset by $11 2 million of unfavorable foreign currency translation.
The organic gain is comprised of double digit increases in activity with OEM dealerships and in sales of under car and collision repair equipment and a low single digit gain in sales of diagnostic and repair information products to independent shop owners and managers.
Gross margin of 42, 9% declined 390 basis points from 46, 8% last year. This was 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 40 basis points.
Favorable foreign currency effects.
Operating expenses as a percentage of sales of 19, 9% improved 400 basis points from 23, 9% last year, primarily due to benefits from sales volume leverage higher activity in lower expense businesses and savings from RCI initiatives.
Operating earnings for the <unk> group of $95 $4 million compared to $83 $3 million last year.
The operating margin of 23% improved 10 basis points from 22, 9% reported a year ago now.
Now turning to slide 10.
Revenue from financial services of $87 3 million, including $1 million of unfavorable foreign currency translation was unchanged from last year financial services operating earnings of $66 4 million, including $800000 of unfavorable foreign currency effects compared to $70.
$6 million in 2021.
Financial services expenses of $29 million were up $4 2 million from 2021 levels, mostly due to three 7 million.
Of increased provisions for credit losses, while provisions have increased versus the historically lower provision rate experienced last year, we believe that loan portfolio trends remained stable.
As a percentage of the average portfolio financial service expenses were nine tenths of 1% and eight tenths of 1% in the third quarters of 2022 and 2021, respectively.
And the third quarters of 2022, and 2021 respective average yield on finance receivables were 17, 7% and 17, 8% in the third quarters of 2022 and 2021, the average yield on contract receivables were eight 6% and eight 5% respectively.
The yield for the portfolio was 15, 8% in the third quarter of 2022, which is the same as last year.
Total loan originations of $300 $2 million in the third quarter increased to $39 million or 11, 5% from 2021 levels, reflecting a 12, 5% increase in originations of finance receivables and an 8% increase in originations of contract receivables.
Moving to slide 11, our quarter end balance sheet includes approximately $2 2 billion of gross financing receivables, including 2 billion from our U S operation.
The 60 day, plus delinquency rate of one 5% for the United States extended credit compared to one 4% in 2021 at one 7% in the pre pandemic period of 2019 out.
On a sequential basis the rate is up 10 basis points, reflecting the seasonal trend, we typically experience between the second and third quarters.
As it relates to extended credit or finance receivables trailing 12 month net losses of $42 2 million represented 241% of Outstandings at quarter end and were down seven basis points as compared to the same period last year.
Now turning to slide 12.
Cash provided by operating activities of $129 $9 million in the quarter compared to $106 $4 million last year. The decrease from the third quarter of 2021, primarily reflects a $63 $5 million increase in working investment change of working investment dollars is largely driven by greater demand, resulting in increased receivables and higher.
<unk> of inventory this year.
In addition to demand based requirements. The inventory increase also reflects higher in transit inventory amounts as well as incremental buffer stocks associated with the supply chain dynamics of the current macro environment.
Net cash used by investing activities of $57 9 million included net additions to finance receivables of $38 2 million and capital expenditures of $20 million.
Net cash used by financing activities of $127 million.
Included cash dividends of $75 $7 million and the repurchase of 228000 shares of common stock for $52 million under our existing share repurchase programs.
As of quarter end, we had remaining availability to repurchase up to an additional $396 million of common stock under existing authorizations.
Turning to slide 13.
Trade and other accounts receivable increased $56 $7 million from 2021 year end days sales outstanding of 60 days compared to 58 days at 2021 year end.
Inventories increased to $151 $3 million from 2021 year and on a trailing 12 month basis inventory turns of two six compared to $2 eight at year end 2021, and two six as of the pre pandemic third quarter of 2019.
Our quarter end cash position of $759 3 million compared to $380 million at year end 2021, our net debt to capital ratio of nine 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 as.
Quarter end, there were no outstanding amounts under the credit facility and there were no commercial paper borrowings outstanding that concludes my remarks on our third quarter performance I'll now briefly review a few outlook items for the remainder of 2022, we anticipate that capital expenditures will be in the range of $90 million to $100 million. In addition, we.
Currently anticipate absent any changes to U S tax legislation that our full year 2022 effective income tax rate will be in the range of 23% to 24% I will turn the call back over to Nick now for his closing thoughts Nick Thanks Aldo.
It was quite a quarter.
A staggering number of media pieces have exhaustively documented a modern day hydro turbulence that that marks this period. So so we all know the challenges are many and there is substantial.
But despite the headwinds snap on a state on a go train and that momentum shines through in the quarter across all our groups all our thing.
C&I growing seven 9% organically extending its position in the critical with robust gains in North America, and Asia Pacific overcoming the variations in Europe , registering an oi margin of 14, 7% the strongest since the supply chain disruptions began in earnest demonstrating continuing progress the tools.
We believe the franchise network is stronger and more capable than ever sales up seven 4% organically Oi margins, 26% down 20 points, but against 40 basis points of unfavorable currency and representing a rise of 680 basis points above 2019, our F&I aggressively expanding repair shop.
Owners and managers growing organically 17, 2% over last year, and 27, 2% over the pre virus era and the Oi margin was strong 23%.
And it all adds up to ongoing an ongoing upward trend for the corporation activity rising 10, 4% organically versus last year and up 22, 8% compared with 2019 Oi margin for the Corporation was 22% up 90 basis points from last year, and 170 basis points above the pre pandemic level and one final test.
<unk> strength the.
EPS was $4 14, a significant gain of 16% versus 2021 and 39, 9% over 2019.
It was an encouraging quarter and we are convinced it's an extremely promising future.
Hey.
We believe that the resilience of our markets.
<unk> critical tasks and changing technology will drive opportunity against the wins, we believe that our strength in customer connection and innovative products and then a special power of our brands well positioned well to fully participate in those possibilities.
We believe that the considerable capability of our experienced team can navigate through any turbulence and.
And we believe that these are unique advantages that we'll maintain our substantial momentum breaking barrier after barrier, reaching new heights to the remainder of this year and into 2023 and well beyond.
Before I turn the call over to the operator, I'll speak directly to our franchisees and associates.
As always.
I know many of you are listening in.
The encouraging performance we detailed here today was made possible only by your individual and your efforts and your collective actions.
For your extraordinary success in offering another strong snap on quarter you have my congratulations for the unique skills and capabilities, you're displaying overcoming the challenges of these days you have my aberration and for your unwavering confidence in our future and European continuing commitment to our team.
You have my thanks.
Now I'll turn the call over to the operator operator.
Come in operator.
Okay.
Okay.
Your line.
Sure.
Yes sure. So we will take the first question is from line Gary from Barrington. Your line is open. Please go ahead.
Hi, good morning, everyone Hey.
Couple of things here could you first of all quantify how much.
Currency impacted EPS this quarter.
It was nice Garrett.
Thank you.
And then Nick you mentioned that there was some.
Pretty good robust order.
Well out of the car.
Conference that you had this year can you.
Maybe give us a quantifiable range of what that was year over year, and then where was there really particular interest in the part of the franchisees and specific.
<unk> tool group's wasn't storage diagnostic just general and whatever.
I will tell you that.
I heard I heard like somebody mentioned double digits.
Versus last year, but look I want to quickly say these are orders theyre.
They're not sales people order and so we had a pretty robust pretty robust number and I don't like to say the real now.
That number was pretty good it's dangerous to extrapolate because they are orders, but orders at that level or better than a poke in the eye with a sharp stick I'll tell you that.
So we feel pretty good about this where it was ordered I think tool storage was terrific. In this in this quarter hand tools were very strong and the big packs, it pretty well big packs or kind of a comprehensive thing that people order. So we saw in those categories I think everything did pretty well.
But the big ticket items were kind of good.
In this particular assay.
The SFA as they were in the quarter.
Big ticket items were strong in them.
Okay, and then you're kind of breaking up there, but I think.
I'll say it again <unk>.
There were big orders.
Double digit.
And secondly, right generally I think you asked me to make a couple of I think the big ticket items were pretty strong for us.
And but generally we have these things Gary call Big packs, where franchisees order comprehensive array of tools hand tools and so on and so they were also pretty strong so handfuls of pretty good.
Okay, and then just one last one if I may.
In terms of diagnostics.
Are you.
Ignostic tools at this point.
We drive train agnostic or do you actually have a specialized diagnostic product.
That is just a systemic to electric vehicles.
We would probably not do that we would probably have we would put them in we've put all types of drivetrains in one tool.
Wouldn't necessarily have one could be could you do it now you have hybrids than.
You would have you would have.
If anything in the process.
The beauty of the diagnostic unit is you can repair anything.
So part of the ideas you plug it in no matter what the car is the model that make the type of thing and so you try to have that in terms of comprehension you now in that situation and we.
The best.
At Best we are the best certainly in terms of comprehensive data coverages. Okay. Thank you.
Yes sure.
Thank you so much.
Thank you we will take the next question from Bret Jordan from Jefferies. Your line is open now. Please go ahead.
Hey, good morning, guys good morning.
You talked about RCI opportunities at the van level I think in the prepared remarks could you talk about maybe even greater detail what youre doing there.
Well, there's a couple of things I mean, one of the things were getting better at applying.
Social media so the idea behind social media, it's a big RCI opportunity because the better we can pre breach the customers.
So when we enter the shops, the customer kind of knows the product he knows the and we have a lot of promotions you know so he knows the promotion. So the franchisee can spend has limited time with that particular individual customizing why those characteristics mean, a lot to him and he can use them.
And so that is really one huge saying, it's one of the things that we're getting better at day by day, but it has driven some of our capabilities in those kinds of situations theres other things in terms of collections in terms of taking inventories on the band in terms of adjusting the computer systems, So it's easier to use and quicker those.
Kinds of things and ways in which they can status of their orders, which is a big deal. These days because you've got a lot of people clamoring for product and are looking for so so those are the kinds of things.
Okay and then all the quick question on the financial services, you'd mentioned sort of higher provisions could you talk about maybe what youre seeing in <unk>.
Cadence of what you're seeing as far as the credit books are the mechanics, I mean, obviously the wage growth has been great, but is there sort of broader pressure.
On the on the credit side.
Bret Good question, we actually saw exceptionally strong performance of 2000 22021, you read about it from other people as well as people service their debt in a more aggressive fashion, bringing it down and people were more current than ever and servicing debt. So we had unusually low provisions in 2021 and 2020 in the back half.
For 2020, what you're seeing now is kind of a return to a more normal pace and even in the quarter up based on comparing it to 17 18 19 the rate of provision is still less than that Europe . So in the quarter Theyre performing well I mean, it's a very typical performance that we're seeing in all of the leading.
<unk> still give rise to the fact that we think will do okay in the credit company.
Okay, great. Thank you.
Thank you and we'll take the next question from the line Scott from <unk> Partners. Your line is open now. Please go ahead.
Good morning, and thanks for taking my questions.
Sure.
Can you talk about sell in to the channel the van channel versus sell out is it fair to assume that things are pretty much.
1414 was there any.
Yes, there is from time to time, but this quarter was sort of right now.
Pretty much the same maybe even you know I'd say right now.
Maybe even a little better but not for government work and can say sell in sell out was about to say.
Alright.
And I talked about on the cargo equipment.
Equipment could you maybe.
Give a little more granularity or was that related to collision repair.
Or is that just everything.
Absolutely absolutely everything is selling.
Car.
Thanks Roger.
Repair is a star in this era.
It's driven by the idea that collision cars now have that neural network of.
Sensors. So every time you.
That your bumper, it's thousands of dollars of repair because you've got to recalibrate everything and so on so forth shaft in front of upgrades to take advantage of that to be actually be able to effectively not only restore shape of putting things back into operating performance, but also the other businesses, we're selling them. The other products like lips, just basic lift, which you would think would be the most.
Vanilla products and in situations are selling quite well, so I think it.
One collision shops as a situation, but also repair shops in general are seeing the future and they are pumped about this like I said, you know I think even the dealerships are starting to get over the idea. They don't have cars to sell on our turning to repair.
Got it and just last question. Obviously, you guys have put up some stellar results the last couple of years, but.
The uncertainty for next year with the recession could you just give us an idea of what we should look out for a potential scenario in the coal mine that we need to.
Look at.
That will give us an early warning sign.
Well first of all.
Now I have to say, though I think when you walk in the garage.
You don't hear recession.
When you watch when you watch the programs like Squawk box in the morning.
Words of research every every 10th word is the word recession and you don't hear that in the factories.
Among the people of work you just don't hear it there really robust about this but if you're talking about Canary in the coal mine. If you looked at the last each one is different but certainly the last ordinary recession that wasn't.
You would see a reduction maybe in bigger ticket items, perhaps because of the because of the confidence in the future.
Generally repair needs to go on it's essentially doing it but people might be.
<unk> into shorter payback items than longer payback items, when they were a little more uncertain about the future of that happened in the financial recession now as it as it turns out in the quarter, our big ticket items were robust.
Got it that's all I have thank you.
Thank you, let's take the next question from the line Luke junk from Brian . Your line is open now. Please go ahead.
Good morning, Thanks for taking the questions.
Just curious to get your perspective on.
The investment posture of the company given the macro backdrop thinking, especially with regards to maintaining the momentum that you've got in the tools group right now and as we look at let's say the tools group as well. It's just some of the key considerations around investment if we do get into a choppy macro in resi and C&I as well well you know look I don't think.
Inc, and I now have been you know I've been through two big downturn.
One the financial recession in two the Covid, if you can call it and I don't remember.
Restricting our investment in the business.
I do not remember that if we wanted to do it if we thought it was important for the future. If the daughter was efficacious for our customers we were able to do it for snap on.
Maybe you get a little you're off the bubble a little bit, but we've never really been restricted in a recession.
And those are two big ones too.
Two bandwidth and so I don't anticipate doing that.
We anticipate our ability to keep investing in the business, we might we might tighten our belts in terms of travel and things other things people do but if you're talking about investing in our business we.
We said last time, we kept going we kept investing in products and brands and people when they lay anybody off and that's what we did and that's why we came out of the research and stronger. So we do the same thing.
Okay.
Okay. Thanks for that.
Really a question around margins and profitability going into next year and my question is around recovering price costs clearly, we can see the impacts of higher material prices and other costs.
Quarter here in <unk> and I'm, just wondering as we turn the page to next year, especially in C&I, where I know your ability to recover cost real time is limited just given the nature of the customers and the contracts.
Youre positioning going into those conversations next year and then also in the tools group of course.
Just how much price elasticity do you think there is in that business today pricing I think we certainly that Oh, let me take the tools group first I think there is.
And in total grew by said many times, we control the customer interface. We believe we can price for visible inflation.
We were pretty satisfied we're pretty encouraged by this quarter third quarter. You know I've said this like 15 third quarters that I've been on this call it's always squirrelly.
No.
The idea that I bought the tools group had a great very encouraging third quarter, especially especially against the currency and being up over 2000, and I think if it comes if it comes to C&I, yes, it's a little bit more viscous in terms of pricing, but if you look at C&I. We I think we got seven 9% up organically, it's pretty good.
It's starting to break out of the problem and a 14, 7% Oi margin while down year over year is the highest since we actually started getting this turbulence. So we see when we step back on it we see let's see.
Fighting against these turbulent both geographically and sector wise, but we see them, winning the war and moving forward and we would consider that to happen. If you look at cost overall generally there's a lot of variation in this but steel costs. For example, sub steel costs are down now so youre going to start seeing that.
At versus last year, others are down versus the peak, but not down versus last year, So you're going to see variation going for it but it's got to be an easing of the situation at least a more positive situation.
About C&I is the ability of getting things and getting them delivered when you have those 100.
<unk> 200 units.
Complex kits to deliver and you have to have them all in place before you send out the kit and so that can that can be double C&I. That's the major battle for them, but I feel pretty confident about the situation I think things are getting better.
Thanks for that and then if I can sneak it in just a quick question for Aldo on the credit business and when I'm, hoping I already got a question on this but just want to ask it a little bit differently in terms of parsing out the decrease in credit income, especially the provision related impacts in the year over year basis can you just help us understand the moving.
Pieces, there between mechanical moving pieces as things normalize post COVID-19 and separately changes in your assumptions around underlying credit that's driving the churn just trying to square that with what are clearly still very loaded liquids rich. Thank you.
I would just say at the highest levels look at say a way to look back that when the world broke into the era of Covid.
There was a lot of trepidation as to what does that mean in looking backwards, you probably have a period, including snap on where we over reserved and the provisions were probably higher than that was necessary and as a result of that when you actually see the proof as it played out but you didn't require those you had been a need for lower provisions in 2000.
'twenty, one and now you're starting to get back to what I call a more normal pace of activity. If you look at the portfolio itself, it's got a little bit better credit characteristic what I mean by that is maybe a dollop of conservatism on the part of who we granted credit Suisse or is less a high risk candidates in the pool and people.
FICO scores have improved marginally so again at a macro 30000 foot level was probably a slightly less amount of credit risk in the portfolio and therefore as we go forward in these trends I think it kind.
Kind of gets back to norm for lack of a better word with that macro backdrop that I just described.
Okay, great. Thank you for that.
Thank you we will take the last question from David Mcmahon.
Your line is open now please go ahead.
Yes. Good morning, everyone can you hear me okay.
Hi can you hear yet.
Alright, wonderful hi, Nick.
I guess it.
I'm doing well thanks, I hope you are as well.
I wanted to.
Good stuff I wanted to just build on that last question and then.
A question with respect to the tool segment then.
You reported seven 4% growth and to the extent that you are sort of maintaining pace with inflation that would suggest that the bulk of that was pricing than you might've been up kind of low single digit kind of numbers.
I guess okay.
Well, let's start with that Yeah go ahead go ahead.
I don't think we think pricing ends up being around you know, we do a list price, but the list price don't all flow and then we've got the it doesn't all hold and then we've got the promotions, which go out and some of them are leaner and some of them are R. R. R. R. R more rich and so you have that and then you've got new products.
That are rolling through the system and they get repriced. So when we look at where all of a sudden done.
Would say that you know.
Tell us about maybe getting half of that in price or maybe a little bit less.
The way we see it it doesn't you can't really just look at the the the list price because they it gets so complicated and looking at that but our best guess is that it's around that number.
So okay.
Yes, it's not seven 4% volume growth, but it's it's certainly not zero.
Sure No I understand so if we assume maybe pricing is maybe 300 basis points and then they've got a 400 basis yeah.
Yeah. It sounds like it and then you got 400 basis points of volume growth.
And it sounds like.
You said earlier in the call that the inventory on the trucks was pretty stable, but it was pretty even growth.
The wholesale and the retail I guess I'm, just trying to reconcile the 11% originations growth, which suggests the big ticket was up very very large and.
The implication of that would be maybe smaller ticket or hand tools was.
Mathematically a negative number, but maybe I'm wrong about that.
David David Yeah, that's cool, but that's not true. The thing is is that remember you've got pricing also rolling through those things year over year. The same way you did that calculation.
On the overall number you've got some of that but but tool storage was strong but you've got other small ticket items, you've got power tools.
You've got you've got what we call shop, and tech, which is a myriad of other things.
That we might sell you know like lights, and pressure gauges and things like that until you have a lot of things that go to that but if you're if you want a pinpoint on handfuls I'll tell you handled it was good in the quarter up double digits again.
Generally the core products were okay.
The things that are normal so that's that's what happened in that situation.
Okay. Thanks for addressing that sure.
Sure Sure go ahead go ahead.
Go ahead.
I'm trying to answer your questions go ahead I guess.
Sure I guess I'm, just trying to get a sense of.
Within your credit business.
Theres ever really many serious questions about quality credits is portfolio you guys have always done a good job.
The job of managing that.
I expect that'll be the case going forward.
You foresee any circumstances whatsoever, where you would consider lowering what you charge an extended credit from that 17, 18% yield something that's maybe a little more.
Hello, more accessible for shall we say hello.
Think about you always think about these things David you know we review it all the time.
But but in reality you know we've kind of held there and it's worked for us for a long time.
And so I think we are we think it's appropriate for the credit profile of the people we deal with and so we haven't changed anything that macro in a long time.
So when you look back and you look at the performance of the credit company. It really isn't marked by major changes in the core model.
It's generally been Hussein.
It isn't that we don't review it or anything but I don't think we're seeing ourselves to do that you know right now anyway.
Yes.
Thanks for addressing my questions I appreciate it sure sure Okay.
Yeah.
And that was our final question. 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.
Okay.
Okay.
[music].