Q4 2022 Snap-On Inc Earnings Call

February 2, 2023

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Yes.

[noise] good day and welcome to the snap on incorporated 2022 fourth quarter and full year results conference call.

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After todays presentation, there will be an opportunity to ask questions to ask a question. Please press Star then one. Please note. This event is being recorded.

Now I'd like to turn the conference over to Tara Bertke, Vice President of Investor Relations. Please go ahead.

Thank you Carl and good morning, everyone. Thank you for joining us today to review snap on fourth 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 Pally, Ari Snap ons, Chief Financial Officer, Nick will kick off our call. This morning with us.

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 slides can be accessed under the downloads tab in the webcast viewers 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 are.

Mr beliefs are that otherwise discuss management's or the company's outlook plans or projections are forward looking statements and actual results may differ materially from those made in such statements additional information and the factors that could cause our results to differ materially from those in the forward looking statements are contained in our SEC filings.

Finally, this presentation includes non-GAAP measures of financial performance, which are not meant to be considered in isolation or as a substitute for their GAAP counterparts. Additional information regarding 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, Sara good morning, everybody Wow.

But some years quite a quarter.

China knee jerking from zero coal strip.

Strict lockdown still living with Covid and unprecedented virus explosions diminished, but still continuing spikes in the supply chain the ongoing Ukraine war, the emergence of the reemergence of Brexit.

And now the rising Shadow, what Lee said, echoing almost daily public pronouncements that total snap ons delivered another in a long line of encouraging performances.

We'll go through it as far as the highlights of the quarter and the year I'll give you my perspective on our results the market environment and our progress with you after that Aldo will move into as usual Aldo will move into a more detailed review of the financials the fourth quarter was encouraging.

We believe it emphatically demonstrated the continuing resilience of our market and the capability of our operations to achieve in the face of difficulty wielding the power of our product our brand our people and our strategic position at all combined to serve as clear evidence of what we already know.

Snap on is unique and extraordinary operations the results for the fourth quarter serve as more testimony to that fact.

And there are an unmistakable demonstration of our continuing momentum.

Of course, we did witness differences from group to group and within the operations, but.

But we believe the overall results are compelling.

Fourth quarter sales of 1 billion $145 9 million as reported up four 3% from 2021 included a substantial impact from.

Unfavorable foreign currency of $37 7 million, a 370 basis point headwind and an organic sales increase of 8% over last year and that represented a 22, 7% rise over 2019. This as that represents the corporations 10th consecutive quarter above pre pandemic levels. It's a trend of I think some cigna.

<unk> in uncertain times like these.

From an earnings perspective, our Opco operating income for the quarter.

The impact from unfavorable foreign currency was $248 $248 million up six 8% compared to 2021 and 44, 7% above the 2019 pre pandemic level. The Oi margin for the quarter. It was 21, 5% improving by 50 basis points over last year.

Okay.

Points over 2019.

It's the same resiliency that's been demonstrated over the years as we've paid dividends every quarter since 1939 without a single interruption or reduction in fact in November our dividend was raised by 14, 1%, marking the 13th straight year of increases it's more testimony of snap ons consistent performance through a very.

Environments.

Just another one of them.

For financial services operating income of $63 9 million was down from 67 point.

66, 54, nine was down from the $67 2 million in 2021.

The decrease reflected the forecasted we are forecast to return to more historical provision levels, but all while keeping delinquencies flat to last year and our overall quarterly EPS reached $4 42, 32 centers seven 8% above 2021, and up 43, 5% compared with 2019.

Well those are the numbers.

Now to the markets.

We believe the automotive repair remains very favorable it makes sense.

The average age of vehicles continue to increase the complexity repairs as rising steeply as new platforms enter the vehicle park and after they have starting in dealerships and we have seen a resurgence in dealership projects. Despite a still recovering supply chain changes in internal combustion the rise of electric vehicles and the expansion of vehicle autonomy.

Have made dealerships equally eager for new equipment to support complex repairs repair cast of the evolving vehicle Park and we see it.

Projects in powertrains aside.

Dealerships continue to see healthy demand in repair and maintenance and warranty driving need for shop expansion and more technicians, you can see it in the macros repair spending technician numbers technician wages all up.

Our dealership segment is expanding.

And for independent repair shops confidence remains sky high across the board shop owners and managers confirm that demand for repairs for technicians are a complex deals are all rising and our sales growth in that sector mirrors that enthusiasm.

We believe we're moving into what we can be called the Golden age of vehicle repair and our tools group and our C&I group are uniquely positioned with our products our brand and the people to take full advantage even in the midst of turbulence.

Can see it.

Now for the critical industries, where our commercial industrial group. Our C&I operates we continue to see progress, but the group's spans a wide jurisdictions and as such various headwinds across the geographies and the industries are attenuated some of those gains for geographies Europe with the war and the reemergence of Brexit and the and China impacted by.

The Covid chaos, where a stark contrast to relatively strong north American more markets a lot of variation in.

And the range of variability among sectors also continue to be a challenge natural resources heavy duty fleets General industries and international aviation were robust, but the military area remained challenged overall.

Overall however.

Order demand for most of the critical industries has been strong and we believe that's a great signal for C&I as future. So C&I. It does have challenges across the geographies and the segments.

But we have made advancements and we see opportunities for tomorrow.

Going forward, we believe we will keep moving down our runways for growth are wide runways for growth and as we as we proceed. We're also fortified as all of you have heard before by our snap on value creation processes safety quality customer connection innovation of rapid continuous improvement of RCI Theres, a core processes that drive our ongoing progress, especially.

Customer connection and innovation growing our product line you.

You see our franchisees and our direct salesforce possess a strategic advantage standing face to face with professional tech understanding their individual challenges showcasing the solutions created by our powerful product and demonstrating their use.

Our resilient markets do represent a significant opportunity and we are there to take advantage up close and personal like no one else right, where the jobs are done and it's working.

2022 was a U S substantial headwinds what our team prevails with.

With the year, achieving new high sales of $4 billion $492 8 million up five 7%, reflecting organic gains of eight 7% compared to 2021, and a 222% organic increase versus 2019, the opco Oi margin for the year was 29%.

90 basis points from 21, and exceeding the prepayment limit pandemic margins by 170 basis points.

As reported earnings per share for the year were $16 82 up 12, 7% from 21 and represented a rise of 35, 5% from 2019, it's all evidence of the decisive and ongoing momentum that mark the year and the quarter.

Now to the operating room, so let's start with C&I.

Fourth quarter sales of $343 2 million for the group were down $15 5 million versus last year, including $21 2 million and unfavorable currency and a one 7% organic game or specialty tools division was a clear positive with double digit gains precision is becoming essential.

Every day and our torque products are putting us right in the middle of that rise our critical industries also showed strength, especially in North America.

By growth in natural resources.

Heavy duty, partially attenuated by lower military activity outside North America. It was a different story SNA Europe was down in China was due.

Diminished.

Oh why for C&I was $47 9 million down $2 2 million, primarily from the $2 3 million in unfavorable foreign currency. The group's operating margin was 14%. It was flat to last year, but still represented an advance of 120 basis points over the pre pandemic level of 2019 and that was against 50 base.

Points of negative currency and acquisition dilution.

The specialty torque business within C&I really is making significant strides torque is hot and snap on is a widening array of new offerings to prominently participate electric products like our new series of digital torque checkers, it's for Martin or of our engineering team you might remember we acquired nor by a few years ago, our nor are our engineering team in England.

More compact and easier to use it helps technicians validate the accuracy of torque instruments close to the workplace saving a lot of time I.

Arnaud checkers accommodates torque measurement from five inch pounds to 500 foot pounds and rentals from a quarter inch to one inch covering.

Jobs from precision fasteners, and a jet cockpit to heavy duty bolt on a giant oil rig a wide range of applications and its compact steel housing easily milestone a variety of <unk> com.

Compact steel housing easily mounts and a variety of convenient locations at the point of issuing or in the pathway of the workflow like tool cribs aviation hangers and manufacturing cells, making towards checking an easy exercise.

With an accuracy of plus or minus 1% on new checkered increases process quality without work interruptions raises consistency and assembly activity and with a streamlined documentation feature greatly improves the management capacity and any application.

The initial launch was well received by any operation relies on precision torque and there are a lot of them.

And as you can imagine the new checkers right on shack track to be a snap on his product with sales of $1 million in the first year. So it looks like it's a it's a pretty strong product for us C&I mixed progress challenged with headwinds, but it did have significant areas of improvement paving the way for <unk>.

Your growth now.

Now onto the tools group quarterly sales of $542 7 million up $37 9 million, including nine 5% as unfavorable currency and a nine 6% organic increase deemed in the U S operation and continued expansion in the international networks and it was all led by big ticket items tool storage and die.

Gnostics, both with thoughtful with double digit gains operating earnings for the tools group were $116 1 million in the quarter to five 6% $5 $6 million above 2021, and that included $4 5 million and unfavorable currency. The operating margin was 21, 4%.

The basis points below last year, but that was impacted by currency and by product mix, but it was still can.

A result of considerable strength.

Tools group again represents the ongoing power and market leadership of our branch network, it's written across the financials and that positivity positivity is clearly and boldly echoed in the voices of our franchisees I can tell you I was just at one of our annual kickoff, it's unmistakable that they're pumped enthusiastic.

I'm confident they know they're growing.

And I firmly believe theres more to be had and our franchisee to franchisee health metrics confirm all of that to be true. The quantitative trajectory delay then that data supports every bit of the positivity of the positive attitude and our franchisees have expressed their excitement and more a more formal ways. During the quarter. We were recognized by the franchise business review, which survey.

Franchisee satisfaction in its latest ranking that publication once again latest annual ranking.

That publication once again listed snap on as a top 50 franchisee the franchise, marking the 16th consecutive year, We received that award and internationally snap on was ranked number one number one and our lead franchisees magazine's top U K franchises for 2023, and finishing that only above the UK only.

Franchise systems, but also.

Coming in ahead of the very popular global brands, a number of very popular global brands.

Type of recognition reflects the fundamental strength of our van business and it would not have been achieved without a continuous stream of innovative new products as part of that snap on continues to lead the industry with great tool storage innovations designed to improve productivity and allow text to personalize their workspace we were the first.

To market with the led power top rightly lighting, the gleaming snap on tools like special Jules.

As each jurors access it's quite a sight it enables techs to show the pride in their work.

And building on that feature in December we started shipping the first of our new Iris tool storage units. It's a 60 inch special edition epic rolled chat, which which allows the technician to adjust the drawer lighting within infinite array of color selections.

It's it is an eye catcher coded in storm, great paired with Red trim and it also features besides its apparent. It also features with the for the first time, especially lit snapple snap on a local nameplate its innovative striking and as for all epic boxes all of them.

Dreams functionality to power top of the power door provides 10 electrical outlets and four USA USB ports throughout the roll cab that ensures that all of the cordless tools. The lights. The accessories are charged and at the ready. It also features a unique speed drawer for smart customizable tool organization, it's a very popular.

And productive feature in the shops convenience productivity and distinction.

The Irish received an overwhelming reception, helping to drive the landmark tool storage. We had just in the fourth quarter landmark tool storage quarter, we had just recently.

Chose that pride really is a powerful salesman.

You show that everyday.

Well, that's our tools group booming in the U S progressing internationally continuing the stream of new products building the brand enhancing the van channel and moving forward with momentum now for our C&I.

In the fourth quarter, our Tonight group results confirmed what we've been saying all along snap on is well positioned for the ongoing rise in vehicle repair <unk> sales in the quarter of $437 9 million increased 11, 6%, including $9 5 million of unfavorable currency and a 14.3.

3% organic gain.

<unk>, 3%.

Shackle ACA that rise was authored by.

Great Great performance and that rises authored by double digit increase in OEM dealerships.

As manufacturers continue to release, new models invest in new equipment and implemented a central tool programs, but our business is a business in the independent garage. So also expanded nicely with double digit growth in our under car equipment in our diagnostics and repair information products twin pillars of strength shop owners need upgrades shop owners need upgrade.

To follow the changing car park and they now have confidence regarding their futures to act on that imperative and snap on is ready to help.

<unk> operating earnings for the quarter were $110 6 million up 13, 8% and again, the <unk> and the operating margin was 25, 3% rising 50 basis points over 2021, exhibiting our team's ability to navigate the turbulence wielding snap on value creation connecting with customers launching innovate.

Launching innovation executing RCI and doing what they are expected to do.

Keep raising profitability.

One example is.

Our diagnostic business.

Double digit growth led by new products led by new products last quarter, we mentioned the launch of our our game changing handheld intelligent diagnostic unit, the Zeus plus well, it's selling at a record pace, it's hard in hardware and software subscriptions. It's a it's a great unit that again raises the bar.

And advanced repair, providing technicians with a powerful help.

And troubleshooting and diagnostic the most complex of vehicle repair Zeus plus makes those special challenges pick up so much time up here quick.

And easy and the techs are noticing.

Our C&I.

The repair shops are confident seeing a great future and arts and I as the products.

Pave their way.

Well, that's our fourth quarter Opco organic sales rising, 8% 10 quarters of consecutive growth from pre pandemic levels tools group demonstrating strength organic sales up nine 6% over last year rising 33, 2% from pre pandemic levels, our C&I products to meet the needs of the of the vehicles of today and tomorrow.

Activity up 14, 3% organically gains in both OEM dealerships and independent shops, C&I showing potential for growth Despite international headwinds strong momentum in the critical industries with much more to go.

And it all drove a 21, 5% operating margin for the overall enterprise rising 50 basis points from last year, and an EPS of $4 42 up over every comparison.

It was another encouraging quarter.

Now I'll turn the call over to Aldo Aldo Thanks, Nick our consolidated operating results are summarized on slide six.

Net sales of $1 billion $155 $9 million in the quarter increased four 3% from 2021 levels, reflecting an 8% organic sales gain partially offset by $37 7 million of unfavorable foreign currency translation.

Organic sales increased this quarter, reflecting double digit gains in the repair systems <unk> information group high single digit growth in the snap on tools group and low single digit gains in the commercial and industrial group.

From a geographic perspective double digit sales growth in both north and South America more than offset weaker demand in Europe .

It's all over the gross margin of 48, 5% improved 40 basis points from 48, 1% last year.

Contributions from the increased sales volumes and pricing actions 40 basis points of favorable foreign currency effects and benefits from the company's RCI initiatives more than offset higher material and other costs.

Again this quarter, we believe the corporation through pricing and RCI actions continued to navigate effectively but cost and other supply chain dynamics of the current environment.

Operating expenses as a percentage of net sales of 27% improved 10 basis points from 27, 1% last year.

Our ending earnings before financial services of $248 million in the quarter compared to $232 $2 million in 2021 as a percentage of net sales operating margin before financial services of 21, 5% improved 50 basis points from last year's fourth quarter.

Financial services revenue of $88 3 million in the fourth quarter of 2022 compared to $86 $9 million last year.

Operating earnings of $63 $9 million decreased to $3 3 million from 2021 levels and included a return to what we believe to be a more normal level of provisions for credit losses than those recorded last year.

Consolidated operating earnings of $311 $9 million in the quarter compared to $299 $4 million last year as.

As a percentage of revenues operating earnings margin of 45, 1% was unchanged from last year.

Our fourth quarter effective income tax rate of 42% compared to 22, 3% last year.

Net earnings of $238 $9 million or $4 43 per diluted share increased $15 2 million or <unk> 32 per share from last year levels, representing a seven 8% increase in diluted earnings per share.

Now, let's turn to our segment results for the quarter, starting with C&I group on slide seven.

Sales of $343 2 million decreased from $358 $7 million last year, reflecting a $5 $7 million or one 7% organic sales gain which was more than offset by $21 2 million of unfavorable foreign currency translation.

The organic growth primarily reflects double digit gains in the segment specialty torque business as well as low single digit increase in sales to customers in critical industries. These.

These gains were partially offset by a mid single digit decline in the segment's European based hand tool business.

With respect to critical industries gains in sales to heavy duty fleets mining and general industry more than offset lower activity with the military.

Gross margin of 37, 7% improved 120 basis points from 36, 5% in the fourth quarter of 2021. This was primarily due to increased sales volumes and pricing actions and benefits from RCI initiatives and 20 basis points of favorable foreign currency effects, partially offset by higher material and other.

Input costs.

Operating expenses as a percentage of sales of 23, 7% in the quarter increased 120 basis points from 42, 5% in 2021, mostly due to reduced sales in lower expense businesses.

Operating earnings for the C&I segment of $47 9 million compared to $50 1 million last year. The operating margin of 14% was unchanged from last year.

Turning to slide eight.

Sales in the snap on tools group of $542 7 million compared to $504 $8 million, a year ago, reflecting a nine 6% organic sales gain partially offset by $9 5 million of unfavorable foreign currency translation.

<unk> sales growth reflects a double digit gain in our U S business and a low single digit increase in our international operations.

The quarter benefited from robust demand for our recently launched Zeus plus diagnostic platform as well as our tool storage product line.

Gross margin of 43, 2% in the quarter declined 70 basis points from 43, 9% last year the year over year decrease was primarily due to 40 basis points of unfavorable foreign currency effects increased sales of lower gross margin products and higher material and other costs. These.

These declines were partially offset by benefits from the higher sales volume and pricing actions as a reminder, the snap on tools group serves as a distributor for products such as diagnostics, which is made by our <unk>.

Operating expenses as a percentage of sales of 21, 8% improved 20 basis points from 22% last year operating earnings for the snap on tools group of $116 $1 million.

Compared to $110 $5 million last year, the operating margin of 21, 4% compared to 21, 9% in 2021.

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

Sales of $437 9 million increased 11, 6% from $392 $5 million in 2021, reflecting a 14, 3% organic sales gain partially offset by $9 5 million of unfavorable foreign currency translation.

<unk> organic game is comprised of double digit increases in sales of under car and collision repair equipment and activity with OEM dealerships and in sales of diagnostics and repair information products to independent shop owners and managers, including those diagnostic sales affected by the snap on tools group.

Gross margin of 45% declined 110 basis points from 46, 1% last year, primarily due to a higher material and other input costs and increased sales and lower gross margin businesses. These declines were.

Were partially offset by benefits from pricing actions and savings from RCI initiatives as well as the 80 basis points of favorable foreign currency effects.

Operating expenses as a percentage of sales of 19, 7% improved 160 basis points from 21, 3% 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 $110 6 million compared to $97 $2 million last year. The operating margin of 25, 3% improved 50 basis points from 24, 8% reported a year ago.

Now turning to slide 10.

Revenue from financial services of $88 3 million, including a $1 2 million of unfavorable foreign currency translation compared to $86 $9 million last year.

Financial services operating earnings of $63 $9 million, including $900000 of unfavorable foreign currency effects compared to $67 $2 million in 2021.

<unk> services expenses of $24 $4 million were up $4 $7 million from 2021 levels, mostly due to $4 8 million of higher provisions for credit losses.

While provisions have increased versus the historically lower provision rate experienced last year, we believe that the loan portfolio trends remained stable.

For reference provisions for finance receivable losses in the current quarter were $12 $8 million as compared to $8 $4 million in the fourth quarter of last year, yet lower than the $14 1 million and a $16 million recorded in the fourth quarters of 2019 and 2018, respectively.

As a percentage of the average portfolio financial service expenses were one 1% and 9% in the fourth quarters of 2022 and 2021, respectively.

And the fourth quarters of 2022 and 2021, the respective average yield on finance receivables was 17, 6% and 17, 7% in the fourth quarters of 2022 and 2021, the average yield on contract receivables were eight 6% and eight 5% respectively.

Blended yield for the portfolio was 15, 7% in the fourth quarter of 2022, which is the same as last year.

Total loan originations of $299 $7 million in the fourth quarter increased $43 $4 million was 16, 9% from 2021 levels, reflecting a 17% increase in originations of finance receivables.

67% increase in originations of contract receivables.

The increase in finance receivable originations reflects the continued strong sales of big ticket items by our franchisees during the court.

Moving to slide 11.

Our quarter end balance sheet includes approximately $2 3 billion of gross financing receivables, including $2 billion from our U S operation.

Total global gross portfolio was up three 4% year over year.

The 60 day, plus delinquency rate of one 6% for U S extended credit was the same as in 2021 and compared to one 8% in the pre pandemic period of 2019.

On a sequential basis the rate is up 10 basis points, reflecting the seasonal trend, we typically experience between the third and fourth quarters.

As it relates to extended credit or finance receivables trailing 12 month net losses of $43 $8 million represented 244% of Outstandings at year end.

This was up six basis points from a year ago. It is 47 basis points lower than year end 2019.

Now turning to slide 12.

Cash provided by operating activities of $210 $6 million in the quarter compared to $222 $7 million last year.

Decrease from the fourth quarter of 2021, primarily reflects a 36, 5% $36 5 billion dollar.

The increase in working investments, partially offset by improved net earnings net cash used by investing activities of $67 9 million included net additions to finance receivables of $47 3 million and capital expenditures of $42 $7 million.

Net cash used by financing activities of $145 8 million included cash dividends of $86 million and the repurchase of 284000 shares of common stock for $65 $3 million under our existing share repurchase programs as.

As of year end, we had remaining availability to repurchase up to an additional $362 $4 million of common stock under existing authorizations.

Turning to slide 13.

Trade and other accounts receivable increased $79 4 million from 2021 year end.

Days sales outstanding of 61 days compared to 58 days at 2021 year end to 67 days as of the pre pandemic year end of 2019.

Inventories increased $249 $3 million from 2021 year and on a trailing 12 month basis inventory turns of $2 five compared to $2 eight at year end 2021 at the two six turns as of year end 2019.

The growth in inventory, primarily reflects higher demand, including inventories to support new products. Additionally, given the dynamics of the current supply chain situation a level of safety stocks and in transit parts components and raw materials are up as our year over year cost associated with finished goods.

Our year end cash position of $757 2 million compared to $780 million at year end 2021.

Net debt to capital ratio of 9% 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 of year end. There were no amounts outstanding under the credit facility and there were no commercial paper borrowings outstanding.

That concludes my remarks on our fourth quarter performance.

Now I'll briefly review a few outlook items for 2023, we anticipate that capital expenditures will be in a range of 90 million to $100 million. In addition, we currently anticipate absent any changes to U S tax legislation that our full year 2023 effective income tax rate will be in a range of 23% to 24%.

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

Thanks Aldo.

Well.

That's our quarter and our year.

Yeah.

I would say, we can characterize particularly the fourth quarter as a period, where the hits just kept on carbon.

Sporadic supply shortages war, Brexit Lockdowns virus explosion, and a constant drumbeat of recession warnings that served up bad news for breakfast every day.

You cannot you can also described the recent patent at the time with snap on clearly.

Demonstrating the resiliency of its markets and the power of its businesses.

C&I.

Engaging the full range of challenges across sectors and geographies, but overcoming growing one 7% organically registering an oi margin of 14% flat to last year, reflecting the turbulence at the moment, but up 120 basis points from pre pandemic levels.

The tools group.

Big ticket items surging organic sales growing nine 6% of overall Oi margin at 21, 4% up from pre pandemic levels down from last year, but primarily due to 40 points of negative currency and a similar impact from less favorable product mix.

<unk> strong.

Our C&I success in both OEM dealerships and independent shops sales up 14, 3% organically and NOI margin of 25, 3% up 50 basis points from last year, We said, we're well positioned for the comeback and repair shops, and our arsenide is showing just that.

And the credit company.

<unk> down, but finance originations growing a strong 17%.

And all of it or authored strong numbers for the corporation.

Organic sales up 8% versus last year, 22, 7% versus pre pandemic levels.

<unk> margin of 21, 5% 21, 5% up 50 basis points, compared with 2021, and 360 basis points over 2019.

Full year organic sales were up eight 7% in the Oi margin for the year was 29% a rise up 90 basis points.

And finally <unk>.

<unk> for the quarter of $4 42 up seven 8% versus last year, and 43, 5% versus pre pandemic levels.

The hits did just keep common but snap on overcame we exited the year stronger than when we entered and we left the quarter in December with greater position of strength than we had in early October .

We do have momentum and you could see it in the numbers, we believe our markets will remain resilient offer ongoing and abundant opportunities and with our inherent advantages.

With our advantages.

The breadth and quality of our products are unique and aspirational nature of our brand and the considerable capabilities of our experienced team. We believe we will maintain the momentum and extend our ongoing positive trajectory throughout 2023 and well beyond.

Now before I turn the call over to the operator.

I want to speak directly to our franchisees and associates franchisees and associates I know that many of you are listening.

You are the people of work the individuals' contributions collectively fostered these results as I look back over the quarter over 2022 and in fact over the past three years. It's clear your efforts as you met the justifiable fear with extraordinary villages of vigilance.

<unk> helped keep our society and our company from disintegrating, while we engaged and prevailed against the Colby.

We often say that snap on people are unique special and consistently make a difference.

<unk> three years had clearly proved itself.

We're ongoing achievement in the past quarter and many others you have my congratulations for your continued dedication enabled enabling the work of our society you have my admiration and.

For your confidence commitment to snap on and its future.

Mike Thanks.

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

Thank you and we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.

If youre using a speakerphone please pick up your handset before pressing that.

Your question. Please press Star then two.

At this time, we will pause momentarily to the third question.

And our first question today will come from Luke Young with Baird. Please go ahead.

Good morning, Thanks for taking the questions I apologize if any of this has been covered in the prepared remarks joined the call little bit late. This morning first question is really good.

Thanks, Nick.

Helpful summary.

Kevin.

Margin related question to start with and what I'm wondering is <unk> got several commodities, including steel that are off of their highs that we saw in 2022 and can you just help us understand how that might start to flow into the P&L. This year, especially in the tools group I know that typically there is at least a couple of quarter timely.

That's associated with that is that still a good way to think about it and at the same time still broader inflationary pressures out there. If you could also comment on your approach to pricing as we begin 2023. Thank you. Yeah. I think look I think I think the I'll answer. The last question first I think our approach to pricing as a as an ads.

As a as we see the situation when when we meet the individual timing like the individual quarters, I think youre going to see a mixed result, you you you said it correctly that that thing has worked its way in some kind of lag into your P&L. As you go forward in terms of the pricing. If you look back you do see a mixed review and say steel for example, <unk>.

Steel is down some it's not down to pre pandemic levels, but tool storage steel is down closer to pre pandemic levels. So you'll see some variation in that and it doesn't look like they're going to go back up it looks like youre going to I would expect to see them. If they go to pre pandemic levels, maybe that's equilibrium, but if youre if youre above that we kind of expect it to kind of go down.

The thing that and Youll see that work its way through and give us some some relief going forward, but the timing of that is a little uncertain based on what you said associated with the leg the big the big impact from the supply chain for US has been the availability of certain items and so sometimes even today, even as a supply chain is regular allows you can't find certain things and you have to go out with.

Spot market and get it this particularly be Devils C&I tools group less so but it has impacted some of the rsi things from time to time, so supply chain I would say in terms of a negative factor is abating, but not disappearing as we go forward. That's what I'd say so it's taken some pressure off it's hard for me to predict.

Oh about certain supply that could come up at any time, so you'll see that kind of situations.

And then thanks for that Nick My follow up question is around credit. So if you look at credit performance and its been very good and if we look at delinquency rates in the back half of the year versus normal seasonality. That's in the context of what's becoming clearly more just more macro risks generally speaking originations trending higher how do you balance credit in 2000.

23 between managing the risk side and pushing on what does seem like it could still be an incremental growth driver for the tools group, given where we're coming from.

Look I think I think this we don't change our policies in terms of risk based.

Based on the externals, so much we don't we don't raise or drop our our credit standards.

Associated with do we need sales or not we pretty much focus on the same customer and look at it the same way going forward I think what youre seeing in rise of originations. It has nothing to do with the credit quality necessarily.

The credits of the.

The customers I think everybody says that professional technicians have a pretty have had a pretty strong balance sheet for some time I think what you've seen is a combination of compelling product and in our technicians seeing the great opportunities they have a numbers.

Numbers of technique demand for technicians up wages up in the repair systems up you can see it in the macro sort of getting more and more confident.

Invest in big ticket items I think.

Did you see originations that's not driven by any credit policy, that's driven by the big ticket items, and whether we use credit or not will be dependent on how well the products are selling in the marketplace now right now.

It is is that if you have big ticket items, leading the way in a robust quarter and they were up double digits platform I think.

Bob what was the word I said I think that says a lot for confidence because what are my experiences and I've been here a while my experience is that when people when things start to look gloomy a little bit in professional technician the need doesn't go away, but they tend to shift more.

So the shorter payback items not big ticket items, that's what happened in the great financial recession. So the fact that we had a big ticket boom.

I think gives me a lot of great confidence in our future.

I will leave it there thanks for the clinic.

Sure.

And our next question will come from Elizabeth Suzuki with Bank of America. Please go ahead.

Great. Thank you guys and so that I mean, the automotive repair injuries arguably had some benefit from the surgeon used vehicle values that caused some older vehicles to stay on the road for longer and understanding that the maintenance. So I guess it as used vehicle values are falling and potentially some more new vehicles start to get on the road and get into dealerships.

Snap on agnostic to that shift in vehicle aging, yes, really I mean, I think as we serve the dealerships just as well you know I mean.

You could argue that older cars have more repairs and maybe be entitled to that but in reality, it's a long wave event Liz.

The fact that new cars are becoming the fact that that that used cars are being held longer. We don't really think that makes that much difference. We followed for years and when you. When you look at a year or a quarter when when let's say scrappage is up our scrap which is down it doesn't seem to affect the numbers at all so for us.

Yeah.

If you said, okay. The car park is going to get younger.

Over time, then that would be some pressure on repair, but the car park has gotten older every year since 1980.

So I don't think thats going to change very much and we I would not put.

The shift to used cars as much of a factor in the strength of the automotive repair market from our perspective.

So I think any change from that is not going to make a difference really and we do serve the dealers we.

We actually get our revenues in the tools group is about.

The dealership revenue revenue from the dealerships in the tools group actually almost dead on reflects the amount of repair that they have as a percentage of the total repair done and in the countries. So we're kind of agnostic between dealerships and.

An independent repair shops.

Got it okay that makes sense and then just a question on capital allocation I'm curious to get your thoughts on the company's current appetite for M&A, and which segments do you feel or potentially even more fragmented where snap on.

Our rollout of smaller businesses and what the pipeline might look like currently well look I think we have a pipeline.

We have a number of prospects, we always look at but we have what we do is we look to say we have runways for growth enhance the van channel expand with repair shop owners and managers extend the critical industries and build in emerging markets and we're always looking for something that's operating in the critical task space, where the where the where the.

Penalties for failure are high.

Other words, not DIY, but professional space that can advance our position all along one of those wrong way there isn't much in the tools group because it dose group was already in a strong position in the Aaron's doesn't doesn't need too much but if you look at and in emerging markets, maybe in emerging markets now thats going to start opening up with all the turbulence that's been floating around there but are too.

Sweet spots in this have been in.

Expanding repair shop owners and managers Thats adjunctive <unk> or extend the critical industries and while we look there is give us a product that gives us more to sell to those customers or a new technology, that's important to the customers or it gives us a presence with customers. So for example, I mentioned, nor bar, nor bars and acquisition, which got us bigger and torque it's.

Critical it's a technology, we could use some help in at the top end. So we acquired it and it was a great success story you can see the same kind of thing and <unk> with the acquisitions of dealer FX, where we wanted to beef up our software position and the dealerships one because it.

It is a profitable situation, but two because it gives you a strategic advantage in terms of the visibility of new products that are going to enter the market just as you've talked about the new of the new products you get a better view of it. So that's the kind of thing so things that will advance us down those those runways for growth are things, we have money for and we have no shyness about acquiring things.

Bigger small, but we're careful we take care of our money. So we don't have transformed the company. We're looking for coherent acquisitions and there are a bunch of those but sometimes when we look at something it isn't it's only 30% what we do or sometimes it isn't what we though.

Where we thought it was and we decided we don't want to have and other times you do cases, nor are our dealer effects, we thought positively.

Alright, great. Thank you.

Sure.

And our next question will come from Scott <unk>.

And partners. Please go ahead.

Good morning, guys and thanks for taking my questions here Scott.

And then you talked about the big ticket items.

Really driving the show for the tools group and how did the hand tools perform in the quarter details were handfuls were flat so handfuls of it boy they were.

They were like going wild.

And last year in the first parts of this year and they are the high actually believe it or not they are the highest margin business in the hand tools and so there are great, but when they back down a little bit that puts a little margin pressure on them.

In the tools group or flattish, okay, though because they are really still strong but tool storage is a great margin business and that was up strong double digit fact, best tool storage ever in fact, I had a guy tell me I was out talking to the sales Guy and he told me. He can sell every tool storage unit.

Built for them.

Backlog is exploding in tool storage. So we can sell a lot of them and then if so and that and that doesn't have much effect that margin the real margin.

The source of the margin comment here with diagnostics.

Diagnostics makes a lot of money for the corporation, but the tools group shares the margin with RF and I remember Rsi makes it and sells it to the tools group. So from a from a pure tools group or when Youre looking at diagnostics that margin is it is a lower one for them and and so the flat.

And as the hand tools and that and the rise in diagnostics created that margin pressure that moved it down somewhat in this period, but we thought this is great. It's one of the reasons why we're at 21, 5% one of the reasons why one of the reasons why <unk> was up 50 basis points, you see because diagnostic sells well for them.

So that's sort of the way the other thing as I said before I want to emphasize boy I think it's a good sign for the future that big ticket is strong that you might argue okay diagnostics had a special case, because we launched the Zeus and it's the best thing since sliced bread and everybody loves it but the fact that tool storage is selling well at really indicate an underlying confidence.

And the and the customer base.

Which speaks well.

For our situation.

Got it and then just last question.

What's the relationship of Selwyn.

Versus the sell through on the off the van.

Yes look we look at these things there are about in the range, where we'd like to see them about sort of equal also when you look back from from from sell in to sell out we see that as being about balance now it always goes up and up and down a little bit every quarter, but this is kind of in the range I think this quarter, it's about equal.

Got it thanks again.

Sure.

And our next question will come from David Macgregor with Longbow Research. Please go ahead.

Yes, good morning, gentlemen.

Good morning, David how are you doing well.

Well, Nick you continue to expand the lexicon of contemporary CEO .

Jay.

Jonathan lock unlock restaurant obsession.

[laughter] listen let me ask you about your balance sheet. Your working capital investment continues to grow I can appreciate you've got more inventory in transit and safety stock, but can you talk about your plans to harvest that cash and as the inventory accumulation concentrated within spin.

Specific lines of business or specific products and how much of that is tools segment versus the other two segments.

No.

I like our inventory because we have a lot of faith in the future, but I'll, let I'll, let al go it's got to answer a question.

I'll, let I'll, let him say something here Algo why don't you say, David if youre looking at year over year, yet the tools group makes a major portion of it but it is not all of it but actually the tools group as their inventories.

Kind of reflective of the fact that they've had very consistent organic growth and therefore I think it's a suitable if you look at some of the other areas where we're investing.

I mentioned in my prepared remarks.

Not insignificant the amount of money that's tied up in in transit inventories and safety stocks again snap ons made a strategic decision to err on the side of availability. So that is priority number one so long answer to your question. We think the inventory is appropriate given the opportunities we see in front of us and the fact that we.

I don't want to Miss on the opportunities that present themselves as we go forward and not have disruption from the supply chain now against snap on is a blessing for lack of a better word would we're not a typical consumer retail oriented company and therefore, we're not subject to the fashion sense as I like to say many other companies.

Have to be concerned about so.

Our product doesn't really obsolesce on the shelf so to speak I mean, yes, you have to update the algorithms in a diagnostic unit or that alignment machine, but pretty much should we feel pretty confident that making an investment in inventory is going to pay off and being able to capture sales in projects or programs that manifest themselves as we go forward.

So I can appreciate that you need that inventory to support the sales activity, but it continues to grow and I guess the question is at some point do you have enough and at what point. If any is there an opportunity to harvest that cash or kind of a structural step up.

There's probably opportunities to harvest that David you're absolutely right, but I wouldn't model it that way in other words I just told you what our strategic decision is and Trust me.

Even more inventory you will never have exactly the right thing at the right time. So you have to be prepared to have a flexible factory and a flexible distribution center because.

80000 different skus impossible to forecast what the accuracy you would like and then you multiply the statistical probability of having them. When you have to put a raise of kit that could have 100 to 200 pieces together and you could see what drives the need for a lot of product and then on top of it you have spare part requirements, sometimes opposed by regulations.

If you go to sell machines that have a life of 10 plus years, such as our lips and alignment machines tire changers wheel balances as obligations behind the scenes to keep ample supplies of spare parts on hand, So you put that altogether and again, we will air in favor of availability there could be opportunities to harvest on this thing.

We don't model ourselves cash flow growth from reduction in inventories, even though thats certainly is the erratically possible.

Let me. Thank you for that let me ask you about growth and you mentioned the improving supply channels, how much of the growth in each segment would you estimate is driven by shipping from backlog the orders rather than new orders.

Look I.

Aye.

Certainly isn't much say in.

In the critical industries, our backlog just keeps growing there that's because they get.

The Devils bye bye.

Bye.

The supply chain disruptions that sort of the thing I was saying it our backlog is really strong there.

And you know I don't think much as in the tools group are our backlog in until stores at all time high and we're actually expanding two of the plants in the tools group this year to try to keep up with this whole situation.

Look in different places like you'd be entitled to the idea that jeez I think Europe is a is a little bit under the weather.

And also you see that kind of thing there, but the U S seems to be booming to me so.

So I don't know you can.

It's a.

It seems to me as though I think you can look at it that way U S is pretty strong and we're trying to look we have real confidence in the future Thats why were expanding our capabilities here.

If I could expand the more tool storage I would tomorrow I told you that I think I said before the Guy said one of the guys is that one of the top sales guys said he can sell everything I could give up.

So I think we're sitting on some pretty good strength in that situation. So I think you can call that book to Bill last time, I think that's pretty healthy in the U S.

A little more turbulence in Europe .

Yeah. So last question please.

Yeah, Okay, yeah, thanks for that Nick and the last question for you just.

The 10-Q is not out yet so maybe if you could just give us the finance receivable charge offs and then just how were overwrites this quarter.

Overrides are not as dynamic as what they've been in the past again that decision is made with the franchisee alright.

A little bit more conservative compared to the 2016 to 2019 window.

We still think personally that's a good bet because we have a lot of metrics behind that in and process that kind of gives a higher sense of collectability on things like that as compared to other companies that might be more upstart. So to speak when it comes to lending to the credit profile of mechanics, but to directly answer. Your question overturns are not as high as what they are.

Ben in the pre pandemic world.

And the charge offs I think I made a remark in my prepared remarks, the charge offs. If you look at the provisions.

Theyre actually narrower I think we're about four point, what was a $4 $4 million difference in the rate of provision the differential between charge offs was actually less than that.

What drove the provision up a little higher is actually with the significant increase in originations we from experience half the book extra reserve provisions because of that because while everything starts out well you know theres going to be a need for some reserve. So the fact that you had high originations in the quarter actually drives a higher provision as well.

So probably in the increase year over year, there's about a $1 $1 billion of sold higher provisions is associated with higher originations.

Right you had provision pretty aggressively back in 2020, which was you know to your credit.

But you know that.

<unk> been working that down with charge offs exceeding provisions for eight of the nine last quarter. So.

Getting back now down pandemic. So that's what makes that's what makes the comparisons tougher now David exactly right right.

Probably by the end of Q1 of 2022, you know the reserve was probably reduced.

Cause of that.

Finally realize we didn't need as much as what we had provided for 2000 22021, and that's why I like to use the expression. We are returning to a more normalized rate of provision and that's what you see now.

So thanks for taking my question here.

Have a good day.

Yes.

And our next question will come from Bret Jordan with Jefferies. Please go ahead.

Hey, Good morning, guys. This is Patrick Buckley on for Bret Jordan, Thanks for taking our questions.

Sure.

C&I business are there any other areas internationally. The highlight you spoken about a bit here, but the European hand tools, but the weaker economic environment. The main drag there or is something else driving that.

It's the it's the weaker economic.

You know the.

UK has got a whole bunch of problems you know the revolving door prime ministers, and so on and that kind of thing.

It tends to be more organized around the northern the northern parts of that that business I think driven in the fourth quarter pretty much by a lot of angst that was in Europe in the fourth quarter over over the fuel situation and that weighed heavily on the people and I think the whole idea that the recession is coming the recession. That's coming there is kind of hit them you got China.

Who is like it's chaos in China, I mean, those guys went from being six weeks in our apartments to all of a sudden let everything go come to work with Covid.

Three quarters of the population and some people say it got got Covid. So I think things kind of went standstill because of lockdowns in various cities on a stand still because everyone's getting it. So that thing has been afflicted so I'm not sure how quickly. It comes back. So you have that the other international markets like other parts of Asia like Southeast Asia seem pretty good.

It.

In that situation. So I think it's just COVID-19 in Asia, particularly China.

And the general sort of combination of recession is coming fuel angst.

And in England Reemergence of now we're out of Covid, the Brexit problems re emerge and the whole idea of the war is there kind of cast a pall over over Europe , Although lately I just heard some some data to the GDP is going to grow in Europe .

Higher than than other places that I don't know I'm from Missouri on that one I think Europe is a little weaker than maybe it's been reflected in that.

That's what John and then.

One other thing you do see is that we have a I think I've said this before we have a strong demand in the critical industries. If we could source a little better if we didn't have the varying disruptions of Watson supply. We could we would have been much stronger in this quarter than in past quarters. It's one of the things that drives both the maybe.

Some of the overhang on the sales and puts put some hang on the margins because of you have to pay for the spot buys and they don't always come in and that's that's really in the critical industries, where if you don't realize it's the day is our custom kits with maybe 200 or 300 items in them and they must be shipped.

<unk>. So if you don't have one or two of them you can't ship.

Got it that's helpful. Thank you and then maybe could you talk a bit more on the subscription side of the Rsi business, how sizeable is that today and how does the growth outlook there compared to the second part of it it's not the growth outlook is pretty good.

The subscriptions are going up I mean, theyre going up through the roof, but the thing is remember that you're probably you may or may not realize this is that the other the former version and still we do some of this is we would sell what we call.

Not subscriptions, but titles. So every six months, we come out with a new with the New software addition, and technicians could buy it for their their diagnostic unit or not.

And we're transitioning from that sort of every six months or every year pop two okay. Pay me every every month and so theres some theres some balancing that but but software is growing in this situation and we can see we can see some positivity in that regard and so that's one of the things that is starting to hedge.

<unk>.

Software and.

Help out the Rsi margins in fact I think.

We want to make sure we focus more on that going forward. So I think that that's one of our great opportunities, we see a lot of opportunity in things like dealership software and independent repair shops software and the Mitchell one business, which we didn't we didn't mention is is still growing like clockwork. It is growing nicely and it's profitability is strong.

It's just not up in the double digit range, but but the subscription business is growing nicely.

Great. That's all I got thank you.

Sure.

Hi.

And our next question will come from Ivan.

Yes.

Do you agree with financial partners. Please go ahead.

Thanks for taking my questions and congratulations again on another great year and a great quarter. Thank you.

So just two questions.

As far as new product development, where where do you see going with.

Core onboard Adas systems continue to grow.

Increasing diagnostics and calibration capabilities inside let's say Apollo and Zeus.

And then also.

The CEO of General Motors has said many times she envisions $50 billion in revenue coming from software and subscriptions, especially as cars become increasingly kind of increasingly software defined functionality.

Though the dealerships will have to kind of become an increasing part of that equation. So how do you see that benefiting dealer.

Well I think it benefits us greatly because well you know.

If you want to sort of like it isn't a 50 billion. Dollar example, what we're doing with <unk>.

We do have examples associated with just what you said.

The advanced driver assistance systems, and the calibrations associated with that.

That's behind that is sold.

Enabled both through our diagnostics like you said like Zeus and Apollo in those and it's enabled through our under car equipment business and those are the two businesses that paid the taste. The Rsi group they were both up nice double digits.

And really the the.

The software and the physicals associated with calibration had been helping drive the situation in under car equipment and the input around systems in Mitchell, one and then a diagnostic systems has helped drive their attractiveness and as more of that goes in those products are going to get.

More and more essential.

To the to the technician and see what Youre seeing I think another way to talk about this I mean is this is that.

Right now, let's say.

If you look at the whole total car park like maybe 45% of the repairs require a diagnostic unit.

But if you look at new units, it's like 80%.

And as software starts to rise more and more of the places where we have leadership in terms of.

In terms of repair information and in the software that's gonna wheel that information and and the calibration will be important for us and that's all making money for us now and the wider it gets the more the more we're going to have in that situation. So we're developing products along that line one of the things that you don't even think about isn't <unk>.

I think you know this very well, but but the thing is right now new cars or like a neural network of sensors.

And if they get thing to get your bumper thing, it's a major operation to Recalibrated receipt of sensors and so on and that's making that's driving a lot of the the.

Underneath car the under car activity in in our C&I. So we're already seeing that and so we're focusing on that stuff as well a big portion of our business now our development now is associated with software and Youre going to see that we're going to focus on it more and more as we go forward.

Well I believe software sales is going to be an increasing opportunity for you. So I'm excited for it.

Yeah, we're going to we're going to we're going to make sure we get big focus on it.

But you know I think we already have a pretty good position in it we did see as it develops these are going to create opportunities are going to lay out there in front of you.

Alright, Thanks, again, and congratulation again, thanks a lot.

Take care.

And this will conclude our question and answer session I'd like to turn the conference back over to you for any 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.

Yes.

Vince has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.

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Good day and welcome to the snap on incorporated 2042 fourth quarter and full year results conference call.

All participants will be in a listen only mode.

Please take note conference specialist by pressing the star Keith followed by zero.

After todays presentation, there will be an opportunity to ask questions to ask a question.

Please note this event is.

Is being recorded.

I would now like to turn the conference over to Terry.

Vice President of Investor Relations. Please go ahead.

Thank you Paul and good morning, everyone. Thank you for joining us today to review snap on fourth 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 Pally, Ari Snap ons, Chief Financial Officer, Nick will kick off our call. This morning with respect.

<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 question.

As usual we've provided slides to supplement our discussion these slides can be accessed under the downloads tab in the webcast viewer as well as on our website snap on dot com under the investors section. These slides will be archived on our website along with a transcript of today's call any statements made during this call relative to management's expectations are.

Thanks, Sara good morning, everybody.

Wow.

<unk> been some year in quite a quarter.

China knee jerking from zero Covid, the strict lockdown to the living with Covid and unprecedented virus explosion diminished, but still continuing spikes in the supply chain. The ongoing Ukraine war, the emergence of the reemergence of Brexit and now the rising shadow of recession, echoing almost daily pub.

Pronouncements and through it all snap on delivered another in a long line of encouraging performances.

We'll go through it starting with the highlights of the quarter and the year I'll give you my perspective on our results the market environment and our progress in after that Aldo will move into as usual Aldo will move into a more detailed review of the financials.

The fourth quarter was encouraging.

We believe it emphatically demonstrates the continuing resilience of our markets and the capability of our operations to achieve in the face of difficulty wielding the power of our product our brand our people and our strategic position in all combined to serve as clear evidence of what we already know.

<unk> is unique and extraordinary operations the results for the fourth quarter serve as more testimony to that fact, and there are an unmistakable demonstration of our continuing momentum.

Of course.

With this differences from group to group and within the operations.

But we believe the overall results are compelling.

Fourth quarter sales of $1 billion $155 9 million as reported up four 3% from 2021 included a substantial impact from.

Difficult and uncertain times like these.

From an earnings perspective, our Opco operating income for the quarter.

Closing the impact from unfavorable foreign currency was $248 $248 million up six 8% compared to 2021 and 44, 7% above the 2019 pre pandemic level.

The Oi margin for the quarter. It was 21, 5% improving by 50 basis points over last year, and 360 basis points over 2019.

<unk> environments.

This is just another one of them.

For financial services operating income of $63 9 million was down from 67 point.

66, nine months down from the $67 2 million in 2021.

Increase reflected the forecast as we are forecasting a return to more historical provision levels, but all while keeping delinquencies flat to last year and our overall quarterly EPS reached $4 42, 32, or seven 8% above 2021, and up 43, 5% compared with 2019.

So those are the numbers.

Now to the markets.

We believe that automotive repair remains very favorable it makes sense you know the average age of vehicles continue to increase the complexity repairs as rising steeply as new platforms enter the vehicle park and after they have starting in dealerships and we have seen a resurgence in dealership projects. Despite a still recovering supply chain.

Changes in internal combustion the rise of electric vehicles and the expansion of vehicle autonomy have made dealerships equally eager for new equipment to support complex repairs repair cast of the evolving vehicle Park and we see it.

Projects in powertrains aside.

All up.

Our dealership segment is expanding.

And for independent repair shops confidence remains sky high across the board shop owners and managers confirm that demand for repairs for technicians are a complex skills are all rising and our sales growth in that sector mirrors that enthusiasm.

We believe we're moving into what we can be called the Golden age of vehicle repair and our tools group and an arts and I group are uniquely positioned with the product the brand and the people to take full advantage even in the midst of turbulence.

You can see it now.

By the Covid chaos, where a stark contrast to relatively strong north American <unk> markets a lot of variation.

Overall however.

Order demand for most of the critical industries has been strong and we believe that's a great signal for C&I as future. So C&I. It does have challenges across the geographies and the segments.

But we have made advancements and we see opportunities for tomorrow.

Going forward, we believe will keep moving down our runways for growth are wide runways for growth and as we as we proceed. We're also fortified as all of you have heard before by our snap on value creation processes safety quality customer connection innovation of rapid continuous improvement of RCI, they're the core processes that drive our ongoing progress, especially.

Customer connection and innovation growing our product line you.

You see our franchisees and our direct sales force plus that's a strategic advantage standing face to face with professional tech understanding their individual challenges showcasing the solutions created by our powerful product and demonstrating their use.

Our resilient markets do represent a significant opportunity and we are there to take advantage up close and personal like no one else right, where the jobs are done and it's working 2022 was a U S substantial headwinds what our team with.

90 basis points from 21, and exceeding the pre pandemic pandemic margins by 170 basis points.

Now to the operating groups, let's start with C&I.

Fourth quarter sales of $343 2 million for the group were down $15 5 million versus last year, including $21 2 million and unfavorable currency and a one 7% organic gains are.

Specialty tools division was a clear positive with double digit gains precision is becoming essential everyday and our torque products are putting us right in the middle of that rise. Our critical industries also showed strength, especially in North America.

By growth in natural resources in general.

Heavy duty, partially attenuated by lower military activity outside North America. It was a different story SNA Europe was down in China was.

Diminished.

A wife, the C&I was $47 9 million down $2 2 million, primarily from the $2 3 million in unfavorable foreign currency. The gross operating margin was 14%. It was flat to last year, but still represented an advance of 120 basis points over the pre pandemic level of 2019 and that was against <unk>.

<unk> points of negative currency and acquisition dilution.

Specialty torque business within C&I really is making significant strides torque is hot and snap on is a widening array of new offerings to prominently participate in that trend, perhaps like our new series of digital chart toward checkers, it's for Martin or of our engineering team you might remember we acquired nor by a few years ago, our nor are our engineering team in England more.

Compact and easier to use it helps technicians validate the accuracy of torque instruments close to the workplace saving a lot of time.

Arnaud checkers accommodates torque measurement from five inch pounds to 500 foot pounds and rentals from a quarter inch to one inch covering us.

Our jobs from precision fasteners, and a jet cockpit to heavy duty bolt on a giant oil ring a wide range of applications and its compact steel housing easily mountain a variety.

Compact steel housing easily mounts and a variety of convenient locations at the point of issuing or in the pathway of the workflow like tool cribs aviation hangers, and manufacturing cells, making torque checking an easy exercise.

With an accuracy of plus or minus 1% on new checker increases process quality without work interruptions raises consistency and assembly activity and with a streamlined documentation feature greatly improves the management of <unk> and any application.

The initial launch was well received by any operation relies on precision torque and there are a lot of them.

And as you can imagine the new checkers right on shack track to be a snap on hit product with sales of $1 million in the first year. So it looks like it's it's a pretty strong product for us C&I mixed progress challenged with headwinds, but it did have significant areas of improvement paving the way for future.

<unk> growth now.

Now onto the tools group quarterly sales of $542 7 million up $37 9 million, including nine 5% as unfavorable currency and a nine 6% organic increase gains in the U S operation and continued expansion in the international networks and it was all led by big ticket items tool storage and die.

Gnostics, both with double.

Double digit gains operating earnings for the tools group were $116 1 million in the quarter to five 6% $5 6 million above 2021, and that included $4 5 million and unfavorable currency. The operating margin was 21, 4% 50 basis points below last year, but that was in.

<unk> by currency and by product mix, but it was still can.

A result of considerable strength.

Tools group again represents the ongoing power and market leadership of our van network. It is written across the financials and that positivity positivity is clearly and boldly echoed in the voices of our franchisees I can tell you I was just at one of our annual kickoff, it's unmistakable that they're pumped enthusiasts.

Confident they know they're growing.

And they firmly believe theres more to be had and a franchisee franchisee health metrics confirm all of that to be true the quantitative trajectory delays and that data supports every bit of the positivity of the positive attitude and our franchisees have expressed their excitement there more more formal ways. During the quarter. We were recognized by the franchise business review, which surveys.

Franchisee satisfaction in its latest ranking that publication once again latest annual ranking.

<unk> franchise systems, but also.

Coming in ahead of the very popular global brands on a number of very popular global brands now that that type of recognition reflects I think fundamentally.

Mental strength of our van business and it would not have been achieved without a continuous stream of innovative new products as part of that Stefan continues to lead the industry with three tool storage innovations designed to improve productivity and allow text to personalize. Their workspace. We are the first to market with the led power top.

Rightly lighting, the gleaming snap on tools like special Jules.

As each store's access it's quite a sight it enables <unk> to show the pride in their work.

And building on that feature in December we started shipping the first of our new Iris tool storage units, it's a $60 <unk> special edition epic, where all cat, which which allows the technician to adjust the jeweler lighting within infinite array of color selections.

It's it isn't high catch it coated and storm great paired with Red trim and it also features besides its apparent. It also features for the for the first time, especially lit snapple snap on a local nameplate its innovative striking and thats, where all epic boxes all of them it streams.

The power top of the power door provides 10 electrical outlets and four USA USB ports throughout the roll cab that ensures that all the cordless tools. The lights the accessories are charges and at the ready. It also features a unique speed drawer for smart customizable tool organization.

Our very popular.

And productive feature in the shops convenience productivity and distinction.

The Irish received an overwhelming reception, helping to drive the the landmark tool storage. We had just in the fourth quarter landmark tool storage quarter, we had just recently.

It shows that pride really is a powerful salesman.

You show that every day.

In the fourth quarter, our Tonight group results confirmed what we've been saying all along snap on is well positioned for the ongoing rise in vehicle repair Rmi sales in the quarter of $437 9 million increased 11, 6%, including $9 5 million of unfavorable currency and a 14.3.

3% organic gain.

<unk>, 3%.

<unk>.

That rise was authored by it and it was a great great performance and that rises authored by double digit increase in OEM dealerships.

As manufacturers continue to release, new models invest in new equipment and implement a central tool programs, but our business is a business in the independent garage. So also expanded nicely with double digit growth in our under car equipment in our diagnostics and repair information products twin pillars of strength shop owners need upgrades shop owners need up.

Grades to follow the changing car park and they now have confidence regarding their futures to axon that imperative and snap on is ready to help.

<unk> operating earnings for the quarter were $110 6 million up 13, 8% and again, the <unk> and the operating margin. It was 25, 3% rising 50 basis points over 2021, exhibiting our team's ability to navigate the turbulence wielding snap on value creation connecting with customers launching innovative launch.

<unk> innovation executing RCI and doing what they are expected to do.

Keep raising profitability.

One example is our diagnostic business.

Double digit growth led by new products led by new products last quarter, we mentioned the launch of our our game changing handheld intelligent diagnostic unit the Zeus plus.

Well, it's selling at a record pace, it's hard in a in hardware and in software subscriptions.

It's a great unit that again raises the bar for an advanced repair providing technicians with a powerful help.

And troubleshooting and diagnostic and the most complex of vehicle repairs Zeus plus makes us special challenges pick up so much time up here quick.

And easy and the techs are noticing.

<unk>.

The repair shops are confident seeing a great future and art and I as the products.

Pave their way.

Of the vehicles of today and tomorrow activity up 14, 3% organically gains in both OEM dealerships and independent shops, C&I showing potential for growth Despite international headwinds strong momentum in the critical industries with much more to go.

And it all drove a 21, 5% operating margin for the overall enterprise rising 50 basis points from last year, and an EPS of $4 42 up over every comparison.

It was another encouraging quarter.

Now I'll turn the call over to Aldo Aldo Thanks, Nick.

Our consolidated operating results are summarized on slide six.

The organic sales increase this quarter reflects double digit gains in the repair systems <unk> information group high single digit growth in the snap on tools group and low single digit gains in the commercial and industrial group.

I'm, a geographic perspective double digit sales growth in both north and South America more than offset weaker demand in Europe .

Holiday the gross margin of 48, 5% improved 40 basis points from 48, 1% last year.

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 27% improved 10 basis points from 27, 1% last year.

Operating earnings before financial services of $248 million in the quarter compared to $232 $2 million of 2021 as a percentage of net sales operating margin before financial services of 21, 5% improved 50 basis points from last year's fourth quarter.

Financial services revenue of $88 3 million in the fourth quarter of 2022 compared to $86 $9 million last year operating earnings of $63 $9 million decreased to $3 3 million from 2021 levels and included a return to what we believe to be a more normal level of provisions for credit losses then.

Those recorded last year.

Consolidated operating earnings of $311 9 million in the quarter compared to $299 $4 million last year.

As a percentage of revenues operating earnings margin of 25, 1% was unchanged from last year.

Our fourth quarter effective income tax rate of 22% compared to 22, 3% last year.

Net earnings of $238 $9 million or $4 43 per diluted share increased $15 $2 million or <unk> 32 per share from last year levels, representing a seven 8% increase in diluted earnings per share.

Now, let's turn to our segment results for the quarter, starting with the C&I group on slide seven.

Sales of $343 2 million decreased from $358 $7 million last year, reflecting a $5 7 million or one 7% organic sales gain which was more than offset by $21 2 million of unfavorable foreign currency translation.

The organic growth primarily reflects double digit gains in the segment specialty torque business as well as low single digit increase in sales to customers in critical industries. These.

These gains were partially offset by a mid single digit decline in the segment's European based hand tool business.

With respect to critical industries gains in sales to heavy duty fleets mining and general industry more than offset lower activity with the military.

Input costs.

Operating expenses as a percentage of sales of 23, 7% in the quarter increased 120 basis points from 22, 5% in 2021, mostly due to reduced sales in lower expense businesses.

Operating earnings for the C&I segment of $47 9 million compared to $50 1 million last year. The operating margin of 14% was unchanged from last year.

Turning to slide eight.

<unk> sales growth reflects a double digit gain in our U S business and a low single digit increase in our international operations.

The quarter benefited from robust demand for our recently launched Zeus plus diagnostic platform as well as our tool storage product line gross.

These declines were partially offset by benefits from the higher sales volume and pricing actions as a reminder, the snap on.

<unk> group serves as a distributor for products such as diagnostics, which is made by our <unk>.

Operating expenses as a percentage of sales of 21, 8% improved 20 basis points from 22% last year.

Operating earnings for the snap on tools group of $116 1 million compared.

Compared to $110 $5 million last year, the operating margin of 21, 4% compared to 21, 9% in 2021.

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

Sales of $437 9 million increased 11, 6% from $392 $5 million in 2021, reflecting a 14, 3% organic sales gain partially offset by $9 5 million.

Unfavorable foreign currency translation.

Your organic gains is comprised of double digit increases in sales of under car and collision repair equipment and activity with OEM dealerships and in sales of diagnostics and repair information products to independent shop owners and managers, including those diagnostic sales affected by the snap on tools group.

Gross margin of 45% declined 110 basis points from 46, 1% last year, primarily due to a 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 the 80 basis points of favorable foreign currency effects.

Operating earnings for the <unk> group of $110 $6 million compared to $97 $2 million last year. The operating margin of 25, 3% improved 50 basis points from 24, 8% reported a year ago.

Now turning to slide 10.

Revenue from financial services of $88 3 million, including a $1 2 million of unfavorable foreign currency translation compared to $86 $9 million last year.

Financial services operating earnings of $63 9 million.

Including $900000 of unfavorable foreign currency effects compared to $67 2 million in 2021.

Financial services expenses of $24 $4 million were up $4 $7 million from 2021 levels, mostly due to $4 8 million of higher provisions for credit losses.

While provisions have increased versus the historically lower provision rate experienced last year, we believe that the loan portfolio trends remained stable for reference provisions for finance receivable losses in the current quarter were $12 $8 million as compared to $8 4 million in the fourth quarter last year, yet lower than the.

$14 1 million and a $16 million recorded in the fourth quarters of 2019 and 2018, respectively.

As a percentage of the average portfolio financial service expenses were one 1% and 9% in the fourth quarters of 2022 and 2021, respectively.

And the fourth quarters of 2022 and 2021, the respective average yield on finance receivables was 17, 6% at 17, 7% in the fourth quarters of 2022 and 2021, the average yield on contract receivables were eight 6% and eight 5% respectively.

Blended yield for the portfolio was 15, 7% in the fourth quarter of 2022, which is the same as last year.

Total loan originations of $299 $7 million in the fourth quarter increased $43 $4 million was 16, 9% from 2021 levels, reflecting a 17% increase in originations of finance receivables of 16, 7% increase in originations of contract receivables.

The increase in finance receivable originations reflects the continued strong sales of big ticket items by our franchisees during the court.

Moving to slide 11.

Our quarter end balance sheet includes approximately $2 3 billion of gross financing receivables, including 2 billion from our U S. Operation. The total global gross portfolio was up three 4% year over year.

The 60 day, plus delinquency rate of one 6% for U S extended credit was the same as in 2021 and compared to one 8% in the pre pandemic period of 2019.

On a sequential basis the rate is up 10 basis points, reflecting the seasonal trend, we typically experience between the third and fourth quarters.

As it relates to extended credit or finance receivables trailing 12 month net losses of $43 $8 million represented 244% of Outstandings at year end. While this was up six basis points from a year ago. It is 47 basis points lower than year end 2019.

Now turning to slide 12.

Cash provided by operating activities of $210 $6 million in the quarter compared to $222 $7 million last year.

The decrease from the fourth quarter of 2021, primarily reflects a 36, 5% or $36 5 million dollar increase in working investments, partially offset by improved net earnings.

Net cash used by investing activities of $67 9 million included net additions to finance receivables of $47 3 million and capital expenditures of 22 $7 million.

As of year end, we had remaining availability to repurchase up to an additional $362 4 million of common stock under existing authorizations.

Turning to slide 13.

Trade and other accounts receivable increased $79 $4 million from 2021 year end.

Days sales outstanding of 61 days compared to 58 days at 2021 year end to 67 days as of the pre pandemic year end of 2019.

Inventories increased $249 $3 million from 2021 year and on a trailing 12 month basis inventory turns of $2 five compared to $2 eight at year end 2021 at the two six turns as of year end 2019.

The growth in inventory, primarily reflects higher demand, including inventories to support new products. Additionally, given the dynamics of the current supply chain situation, our level of safety stocks and in transit parts components and raw materials are up as our year over year costs associated with finished goods.

Our year end cash position of $757 2 million compared to $780 million at year end 2021.

Net debt to capital ratio of 9% compared to nine 1% at year end 2021.

That concludes my remarks on our fourth quarter performance.

I'll now briefly review a few outlook items for 2020, we.

The fate that capital expenditures will be in a range of 90 million to $100 million.

In addition, we currently anticipate absent any changes in the U S tax legislation.

Our full year 2023 effective income tax rate will be in a range of 23% to 24%.

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

Thanks Aldo.

Well.

That's our quarter.

Our year.

Yes.

I would say we've been characterized particularly the fourth quarter as a period, where the hits just kept on carbon.

Sporadic supply shortages war, Brexit Lockdowns virus explosion, and a constant drumbeat of recession warnings that served up bad news for breakfast every day.

You cannot you can also describe the recent passage of time on snap on clearly demonstrated.

Demonstrate the resiliency of its markets and the power of its businesses.

C&I.

The tools group.

Big ticket items surging organic sales growing nine 6% of overall Oi margin at 21, 4% being from pre pandemic levels down from last year, but primarily due to 40 points of negative currency and a similar impact from less favorable product mix.

Still strong.

Our F&I success in both OEM dealerships and independent shops sales up 14, 3% organically and an Oi margin of 25, 3% up 50 basis points from last year, We said, we're well positioned for the comeback of repair shops, and Orange arsenide is showing just that.

And the credit company.

OLED down, but finance originations growing a strong 17%.

And all of it authored strong numbers for the Corporation.

Organic sales up 8% versus last year, 22, 7% versus pre pandemic levels.

<unk> margin of 21, 5% 21, 5% up 50 basis points, compared with 2021, and 360 basis points over 2019.

Full year organic sales were up eight 7% in the Oi margin for the year was 29% a rise of 90 basis points.

And finally.

EPS for the quarter of $4 42.

Up seven 8% versus last year, and 43, 5% versus pre pandemic levels.

We do have momentum and you could see it in the numbers.

We believe our markets will remain resilient offer ongoing and abundant opportunities and with our inherent advantages.

With our advantages.

Now before I turn the call over to the operator.

I want to speak directly to our franchisees and associates franchisees and associates I know that many of you are listening.

Yeah.

You are the people of work the individuals who contributions collectively posted these results as I look back over the quarter over 2022 and in fact over the past three years. It's clear your efforts as you met the justifiable fear with extraordinary villager of vigilance helped keep our society and our come.

<unk> from disintegrating, while we engaged and prevailed against the Colby.

We often say that snap on people are unique special and consistently make a difference.

Past three years have clearly proved itself.

We're ongoing achievement in the past quarter and many others you have my congratulations for your continued dedication enabled enabling the work of our society you have my admiration.

And for your confidence commitment to snap on and its future you have my thanks.

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

Thank you and we will now begin the question and answer session.

Ask a question you May press Star then one on your Touchtone phone.

If youre using a speakerphone please pick up your handset before pressing the key.

The majority of your question. Please press Star then two and at this time, we'll pause momentarily both great questions.

And our first question today will come from Luke Young with Baird. Please go ahead.

Good morning, Thanks for taking the questions I apologize if any of this has been covered in the prepared remarks joined the call little bit late. This morning first question was really good.

Okay.

So summary, Devin.

A margin related question to start with and what I'm wondering is <unk> got several commodities, including steel that are off of their highs that we saw in 2022 and can you just help us understand how that might start to flow into your P&L. This year, especially in the tools group I know that typically there is at least a couple of quarter time lag.

Associated with that is that still a good way to think about it and at the same time still broader inflationary pressures out there. If you could also comment on your approach to pricing as we begin 2023. Thank you. Yes, I think look I think I think the I'll answer. The last question first I think our approach to pricing as a as an ads.

As as we see the situation when when we meet the individual timing like the individual quarters, I think youre going to see a mixed result, you said it correctly that that things work its way in some kind of lag into your P&L is as you go forward in terms of pricing. If you look back you do see a mixed review and say steel for example hands.

Downwards, the thing that and Youll see that work its way through and give us some some relief going forward, but the timing of that is a little uncertain based on what you said associated with the lag the big the big impact from the supply chain for US has been the availability of certain items and so sometimes even today even as the supply chain is regular allows you can't find certain things and you have to go out.

The spot market and get this particularly be Devils C&I tools group less so, but it's impacted some of the rsi things from time to time, so supply chain I would say in terms of a negative factor is abating, but not disappearing as we go forward. That's what I'd say so it's taken some pressure off it's hard for me to predict.

Though about certain supplies that could come up at any time.

You see that kind of situations.

And then thanks for that Nick My follow up question is around credit. So if you look at credit performance. It's been very good and if we look at delinquency rates in the back half of the year versus normal seasonality. That's in the context of what's becoming clearly more just more macro risks generally speaking originations trending higher how do you balance credit in <unk>.

23 between managing the risk side and pushing on what does seem like it could still be an incremental growth driver for the tools group, given where we're coming from.

Look I think I think this we don't change our policies in terms of risk based.

Based on the externals. So much we don't we don't raise or drop our our other credit standards associated with do we need sales or not we pretty much focus on the same customer and look at it the same way going forward.

What you're seeing in rise of originations it has nothing to do with the credit quality necessarily that the the credits of the cut.

Customers I think everybody says that professional technicians have a pretty good to have had a pretty strong balance sheet for some time I think what you've seen is a combination of compelling product and PNR technicians seeing the great opportunities they have.

Numbers of technique demand for technicians up wages up in the repair systems up you can see that in the macro sort of getting more and more confident.

Invest in big ticket items I think the.

It is is that if you have big ticket items, leading the way in a robust quarter and they were up double digits by Paul I think we will.

So the shorter payback items not big ticket items, that's what happened in the great financial recession. So the fact that we had a big ticket boom.

It gives me a lot of great confidence in our future.

I will leave it there thanks for the color Nick.

Sure.

And our next question will come from Elizabeth Suzuki with Bank of America. Please go ahead.

Great. Thank you guys.

I mean, the automotive repair industry is arguably had some benefit from the surge in used vehicle values that caused some older vehicles to stay on the road for longer and vehicle owners to invest in maintenance and I guess is as you vehicle values are falling and potentially some more new vehicles start to get on the road and get into dealerships I mean snap on agnostic to that shift in via.

Yes, really I mean, I think as we serve the dealerships just as well you know I mean.

You could argue that older cars have more repairs and maybe be entitled to that but in reality, it's a long wave event Liz.

The fact that new cars are becoming the fact that that that used cars are being held longer. We don't really think that makes that much difference. We followed for years and when you. When you look at a year or a quarter when when let's say scrappage is up for scrap which is down it doesn't seem to affect the numbers at all so for us.

Yeah.

If you said, okay. The car park is going to get younger.

Over time, then that would be some pressure on repair, but the car park has gotten older every year since 1980.

So I don't think thats going to change very much and we I would not put.

The shift to used cars as much of a factor in the strength of the automotive repair market from our perspective.

So I think any change from that is not going to make a difference really and we do serve the dealers.

We actually get our revenues in the tools group is about.

The dealership revenue revenue from the dealerships in the tools group actually almost dead on reflects the amount of repair that they have as a percentage of the total repair done and in the country. So we're kind of agnostic between dealerships and.

An independent repair shops.

Got it okay that makes sense and then just a question on capital allocation I'm curious to get your thoughts on the company's current appetite for M&A and which segments do you feel are potentially more fragmented where snap on thank you.

Rollout of smaller businesses and what the pipeline might look like currently well look I think we have a pipeline we have a number of prospects. We always look at but we have what we do is we look to say we have runways for growth enhance the van channel expand with repair shop owners and managers extend the critical industries and build in emerging markets and we are.

We're always looking for something that's operating in the critical task space, where the where the where the penalties for failure are high.

Other words, not DIY, but professional space that can advance our position all along one of those wrong way there isn't much in the tools group because it dose group is already in a strong position in the air and it's it doesn't doesn't need too much but if you look at and in emerging markets may be in emerging markets now that's going to start opening up with all the turbulence that's been floating around there but are too.

Sweet spots in this have been in.

Expanding repair shop owners and managers, that's a jumped arsenite or extend the critical industries and while we look there is give us a product that gives us more to sell to those customers or a new technology that is important to the customers or it gives us a presence with customers. So for example, I mentioned, nor bar, nor bars and acquisition, which got us bigger and torque it's.

Critical it's a technology, we could use some help in at the top end. So we acquired it and it was a great success story you can see the same kind of thing and hearts and I with the acquisitions of dealer FX, where we wanted to beef up our software position and dealerships one because it's.

It's a profitable situation, but two because it gives you a strategic advantage in terms of the visibility of new products that are going to enter the market. Just as you talked about the new of the new products you get a better view of it. So that's the kind of thing so things that will advance us down those those runways for growth are things, we have money for and we have no shyness about acquiring things.

Bigger small, but we're careful we take care of our money. So we don't have transformed the company, we're looking for coherent acquisitions.

There are a bunch of those but sometimes when we look at something it isn't it's only 30% what we do or sometimes it isn't what we built.

Where we thought it was and we decide we don't want to have and other times. We do cases, nor are our dealer effects, we thought positively.

Alright, great. Thank you sure.

And our next question will come from Scott <unk>.

And partners. Please go ahead.

Good morning, guys and thanks for taking my questions here Scott.

And then can you talk about the big ticket items.

Really driving the show for the tools group, but how did the hand tools perform in the quarter and sales were handfuls were flat so handfuls of embalming.

We're like going wild.

In the last year and the first parts of this year and they are the high actually believe it or not they are the highest margin business in the hand tools and so there are great, but when they backed down a little bit that puts a little margin pressure on them.

Built for them.

Backlog is exploding in tool storage. So we can sell a lot of them and then so and that and that doesn't have much effect on margin the real margin.

Source at a margin comment here with diagnostics.

Diagnostics makes a lot of money for the corporation, but the tools group shares the margin.

With ours and I remember <unk> makes it and sells it to the tools group. So from a from a pure tools group or when Youre looking at diagnostics that margin is it is a lower one for them and so the flatness of hand tools and that and the rise in diagnostics created that margin pressure that moved it down.

Somewhat in this period, but we thought this is great. It's one of the reasons why we're at 21, 5% one of the reasons why one of the reasons why <unk> was up 50 basis points, you see because diagnostic sells well for them.

So that's sort of the way the other thing as I said before I want to emphasize boy I think it is a good sign for the future that big ticket is strong now you might argue okay diagnostics had a special case, because we launched the Zeus and it's the best thing since sliced bread and everybody loves it but the fact that tool storage is selling well at really indicate.

Underlying confidence in the <unk>.

The customer base.

Speaks well.

For our situation.

Got it and then just last question.

What's the relationship of selling.

Versus the sell through on the off the van.

Yes look we look at these things there are about in the range, where we'd like to see them about sort of equal and also when you look back from from from sell in to sell out we see that as being about balance now it always goes up and up and down a little bit every quarter, but this is kind of in the range I think this quarter, it's about equal.

Got it thanks again.

Sure.

And our next question will come from David Macgregor with Longbow Research. Please go ahead.

Yes, good morning, gentlemen.

Good morning, David how are you doing well.

Well, Nick you continue to expand the lexicon of contemporary CEO .

So while we didn't lock unlock restaurant special [laughter].

Specific lines of business or specific products and how much of that's tool segment versus the other two segments.

No.

Yes.

I like our inventory because we have a lot of faith in the future, but I'll, let I'll, let al dose got to answer a question.

I'll, let it I'll, let him say something here Algo why don't you say, Oh, well, David if youre looking at year over year, yet the tools group makes a major portion of it but it's not all of it but actually the tools group has their inventories.

Kind of reflective of the fact that they've had very consistent organic growth and therefore I think it's a suitable if you look at some of the other areas where we're investing.

I mentioned in my prepared remarks.

Don't want to Miss on the opportunities that present themselves as we go forward and not have disruption from the supply chain now against snap on is a blessing for lack of a better word would we're not a typical consumer retail oriented company and therefore, we're not subject to the fashion sense as I like to say many other companies.

Have to be concerned about so.

Our product doesn't really obsolesce on the shelf so to speak I mean, yes, you have to update the algorithms in a diagnostic unit or the life of machine, but pretty much should we feel pretty confident that making an investment in inventory is going to pay off and being able to capture sales in projects or programs that manifest themselves as we go forward.

I can appreciate that you need that inventory to support the sales activity, but it continues to grow and I guess the question is at some point do you have enough and at what point. If any is there an opportunity to harvest that cash or kind of a structural step up.

There's probably opportunities to harvest that David you're absolutely right, but I wouldn't model it that way in other words I just told you what our strategic decision is and Trust me even.

Even more inventory you will never have exactly the right thing at the right time. So you have to be prepared to have a flexible factory and a flexible distribution center because.

80000 different skus impossible to forecast what the accuracy you would like and then you multiply the statistical probability of having them. When you have to put a raise of kits that could have 100 to 200 pieces together and you could see what drives the need for a lot of product and then on top of it you have spare part requirements, sometimes imposed by regulation.

So if you go to sell machines that have a life of 10 plus years, such as lifts in our LIBOR machines tire changers wheel balances as obligations behind the scenes to keep ample supplies of spare parts on him.

Put that altogether and again, we will air in favor of availability there could be opportunities to harvest on the saying that we don't model ourselves cash flow growth from reduction in inventories, even though that certainly is the erratically possible.

Well look I.

I see.

Certainly isn't much say in.

In the critical industries, so our backlog just keeps growing there that's because they've got to keep being the.

B Devils bye bye bye.

Bye.

Apply chain disruptions, that's sort of the thing I was saying it our backlog is really strong there and I don't think much as in the tools group are our backlog in tool storage at all time high.

And we're actually expanding two of the plants in the tools group this year to try to keep up with this whole situation. You know you can look at different places like you'd be entitled to the idea that jeez I think Europe is there's.

There's a little bit under the weather.

Also you see that kind of thing there, but the U S seems to be booming than me.

So I don't know you can.

It's a.

It seems to me as though I think you can look at it that way U S is pretty strong and we're trying to look we have real confidence in the future Thats why were expanding our capabilities here if I can.

If I could expand more tool storage I would tomorrow I told you that I think I said before the Guy said one of the guys that one of the top sales guys said he can sell everything I could give up.

So I think we're sitting on some pretty good strength in that situation.

I think you can call that book to Bill last time, I think thats pretty healthy in the U S.

A little more turbulence in Europe .

Yeah. So last question please.

Yeah, Okay, yeah, thanks for that Nick and the last question for me just.

Thank you is not out yet so all but maybe if you could just give us the finance receivable charge offs and then just how were overwrites this quarter.

Overrides are not as dynamic as what they've been in the past again that decision is made with the franchisee alright.

A little bit more conservative compared to the 2016 to 2019 window.

We still think personally that's a good bet because we have a lot of metrics behind it in and process that kind of gives a higher sense of collectability on things like that as compared to other companies that might be more upstart. So to speak when it comes to lending to the credit profile of mechanics, but to directly answer. Your question overturns are not as high as what they are.

Ben in the pre pandemic world.

And the charge offs I think I made a remark in my prepared remarks, the charge offs. If you look at the provisions.

Theyre actually narrower I think we're about four point, what was a $4 $4 million difference in the rate of provision the differential between charge offs was actually less of that.

What drove the provision up a little higher.

With the significant increase in originations we from experience.

Book extra reserve provisions because of that because while everything starts out well you know theres going to be a need for some reserve. So the fact that you had high originations in the quarter actually drives a higher provision as well so probably in the increase year over year is about $1 $1 billion or so higher provisions just associated with higher originations.

Right you had provision pretty aggressively back in 2020, which was you know to your credit.

But.

You've been working that down with charge offs exceeding provisions for eight of the nine last quarter. So no kind of.

Getting back now down pandemic. So that's what makes that's what makes the comparisons tougher now David exactly right right right.

Probably by the end of Q1 of 2022, the reserve was probably reduced.

Cause of that.

Finally realized we didn't need as much as what we had provided for 2000 22021, and that's why I like to use the expression. We are returning to a more normalized rate of provision and that's what you kind of see now.

So thanks for taking my question here.

Have a good day.

Yes.

And our next question will come from Bret Jordan with Jefferies. Please go ahead.

Good morning, guys. This is Patrick Buckley on for Bret Jordan, Thanks for taking our questions sure.

C&I business are there any other areas internationally that highlight you spoken about a bit here, but the European hand tools, but as the weaker economic environment. The main drag there or is something else driving that.

It's the it's the weaker economic.

The.

UK has got a whole bunch of problems you know the revolving door prime ministers, and so on and that kind of thing.

It tends to be more organized around the northern the northern parts of that that business I think driven in the fourth quarter pretty much by a lot of angst that within Europe in the fourth quarter over over the fuel situation and that weighed heavily on the people and I think the whole idea that the recession is coming the recession is coming there has kind of hit them you got China.

Who is like it's chaos in China, I mean, those guys went from being six weeks into our apartments to all of a sudden let everything go come to work with Covid.

And three quarters of the population some people say it got got Covid. So I think things kind of went stand still because of lockdowns in various cities in a standstill because everyone's again, so that thing has been afflicted so I'm not sure how quickly. It comes back. So you have that the other international markets like other parts of Asia like Southeast Asia seemed pretty good.

Good.

In that situation. So I think it's just COVID-19 in Asia, particularly China, and the general sort of combination of recession is coming fuel angst.

Higher than than other places that I don't know I'm from Missouri on that one I think Europe is a little weaker than maybe it's been reflected in that.

That's what John and then.

Some of the overhang on the sales and puts puts them.

Hang on the margins because of you have to pay for the spot buys and they don't always come in and that's that's really in the critical industries, where if you don't realize it's the day is our custom kits with maybe 200 or 300 items in them and they must be shipped complete. So if you don't have one or two of them you can't ship.

Got it that's helpful. Thank you.

Maybe could you talk a bit more on the subscription side of the resi business, how sizeable is that today and how does the growth outlook there compared to the second half.

It's not the growth outlook is pretty good.

Not subscriptions, but titles. So every six months, we come out with a new with the New software addition.

And technicians could buy it for their diagnostic unit or not and we're transitioning from that sort of every six months or every year pop two okay. Pay me every every month and so theres some theres some balance in that but but software is growing in this situation and we can see we can see some pause.

Activity in that regard and so that's one of the things that is starting to help out.

Software.

Help out the <unk> margins and in fact I think.

We want to make sure we focus more on that going forward. So I think that that's one of our great opportunities, we see a lot of opportunity in things like dealership software and independent repair shops software and the Mitchell one business, which we didnt, we didnt mention and this is still growing like clockwork. It is growing nicely and it's profitability is strong.

It's just not up in the double digit range, but but the subscription business is growing nicely.

Great. That's all I got thank you.

Sure.

Hi.

And our next question will come from Aileen.

With.

Do you agree with financial partners.

Hi, Thanks for taking my questions and congratulations again on another great year and a great quarter. Thank you.

So I have just two questions.

One as far as new product development, where where do you see going with.

Core onboard Adas systems continue to grow increasing diagnostics and calibration capabilities inside of let's say Apollo and Zeus and then also.

Though the dealerships will have to kind of become an increasingly integral part of that equation. So how do you see that benefiting dealer.

Got it.

I think it benefits us greatly because.

You know if you want to sort of like it isn't a 50 billion. Dollar example, what we do we do.

We do have examples associated with just what you said at the advanced driver assistant systems, and the calibrations associated with that.

That's behind that is sold.

Enabled both through our diagnostics like you said like Zeus and Apollo in those and it's enabled through our under car equipment business and those are the two businesses that paid the paste. The Rsi group they were both up nice double digits.

And really the.

The software and the physicals associated with calibration had been helping drive the situation in under car equipment and the input around.

Systems in Mitchell, one and then a diagnostic systems has helped drive their attractiveness and as more of that goes in those products are going to get more and more essential.

To the.

The technician and see what you're seeing I think another way to talk about this I mean is this is that.

Right now, let's say.

If you look at the whole total car park like maybe 45% of the repairs require a diagnostic unit but.

But if you look at new units, it's like 80%.

And as software starts to rise more and more of the places where we have leadership in terms of.

In terms of repair information and in the software that's gonna wheel that information and the calibration will be important for us and that's all making money for us now and the wider it gets the more the more we're going to have in that situation. So we're developing products along that line one of the things that you don't even think about isn't <unk>.

<unk>.

I think you know this very well, but but the thing is right now new cars or like a neural network of sensors.

And if they get things you get your bumper things, it's a major operation to recalibrate. It received the sensors and so on and that's make it that's driving a lot of the the.

Well I I believe software sales is going to be an increasing opportunity for you. So I'm excited for it.

Yeah, we're going to we're going.

We're going to make sure we get big focus on it.

But I think we already have a pretty good position in it we did see as it develops these are going to create opportunities are going to lay out there in front of you.

Yes.

Alright, Thanks, again, and congratulation again, thanks, a lot I must take care.

And this will conclude our question and answer session I would like to turn the conference back over to you for any 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.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.

Q4 2022 Snap-On Inc Earnings Call

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