Q1 2023 Snap-on Inc Earnings Call

April 20, 2023

Speaker 1: The and J I nine.

Speaker 1: It very.

Speaker 1: Well, this is still better than once.

Speaker 2: Hello and welcome to the Snap-on Inc. 2023 First Quarter Results Conference Call.

Speaker 2: All participants will be in listen-only mode. Should you need assistance, please send your conference specialist to pressing the star key followed by zero.

Speaker 2: After today's presentation, there will be an opportunity to ask questions.

Speaker 2: To ask a question, you may press star then 1 on your touchtone phone. To withdraw your question, please press star then 2. Please note, today's event is being recorded. I would now like to turn the conference over to your host today, Sarah Vrebsky, Vice President, Vesta Relations. Ma'am, please go ahead.

Speaker 3: Thank you Keith and good morning everyone. Thank you for joining us today to review Snap-on's first quarter results, which are details in our press release issued earlier this morning. We have on the call today Nick Pinchuk, Snap-on's Chief Executive Officer and Aldo Polliari, Snap-on's Chief Financial Officer.

Speaker 3: Nick will kick off our call this morning with his perspective on our performance. Aldo will then provide a more detailed review of our financial results. After Nick provides some closing thoughts, we'll take your questions. As usual, we have 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 SnapOn.com under the investor section.

Speaker 3: 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 an isolation or as a substitute for their GAAP counterparts.

Speaker 3: 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 Nick, thanks Nick.

Speaker 3: 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, Sarah.

Speaker 4: As usual, I'll start the call by covering the highlights of the first quarter and I'll give you my perspective on what it all means. And then Aldo will provide a detailed review of the financials.

Speaker 4: Along the way we'll cover the markets.

Speaker 4: Through bustcing gangbusters.

Speaker 4: We'll also give you a view of our momentum. It's been unbroken and vibrant.

Speaker 4: Once again, the story of our quarter is continued resilience. Our ability to navigate the complex while knowing that with the flip of a calendar will bring new challenges. You can pick up any significant publication or listen or watch any business show and you'll encounter a barrage of concerns, a message of adversity and contraction.

Speaker 4: Our ability to navigate the complex while knowing that with the flip of a calendar will bring new challenges. You can pick up any significant publication or listen or watch any business show and you'll encounter a barrage of concerns, the measures of adversity and contraction. But we know.

Speaker 4: We can resist the difficulties and so we have for the past three months and for quarter after quarter.

Speaker 4: You see, we're armed with significant advantages. Our markets displaying resilience, born out of criticality. Our brand standing above, delivering quality and reinforcing personal pride. Our products, they clearly move the world forward by making the critical easier. And finally...

Speaker 5: are people.

Speaker 4: our team.

Speaker 4: experienced, capable, and confident.

Speaker 4: We are encouraged by this quarter.

Speaker 4: encouraged by this quarter and I'll tell you why.

Speaker 4: Our reported sales in the period were 1 billion, 183 million, up versus last year by 85.2 million or 7.8%, including 24 million or 240 basis points of unfavorable foreign exchange. Organic sales, they were up 10.2%. Increases in every group. Our 11th consecutive quarter of Euro...

Speaker 4: It was 22%, rising 170 basis points over last year.

Speaker 4: For financial services, operating income of $66.3 million compared to last year's $70.4 million. And that, combined with OPCO, resulted in a consolidated operating margin of 25.6%, an 80 basis point improvement.

Speaker 4: And the first quarter's EPS, $4.60. Or 15% from last year's $4.

Speaker 4: quarters EPS $4.60 up 60 cents or 15% from last year's $4. So we believe our competence...

Speaker 4: and our ongoing optimism is clearly justified by the numbers.

Speaker 4: Now let's look closer at our markets. The automotive repair environment remains hot. Demand across all disciplines. We continue investing in new products and accommodating repair challenges of newer models, matching the increased complexity. As platforms change, we continue to invest in new products and accommodating repair challenges.

Speaker 4: The modification requires new tools to accomplish the task, and we're keeping pace. Whether it's an internal combustion engine or an electric vehicle, the techs need an assist and we're ready to bring it.

Speaker 4: The updates create a range of challenges, new challenges, from accessibility issues associated with confined spaces requiring new designs of varying geometries.

Speaker 4: To tighter engineering power sources fueling the need for precision torque instruments. To the increasing number of fasteners enlisting our power tools to remove and install parts efficiently. To the rise of drive by wire.

Speaker 4: More electronics, the more the electronics...

Speaker 4: the greater the need for handheld diagnostics and special software that can communicate with and manage the neural network of computers and sensors.

Speaker 4: the greater the need for handheld diagnostics and special software that can communicate with and manage the neural network of computers and sensors. We're seeing strength in OEM dealerships.

Speaker 4: As new models break onto the market, new arrays of essential tools, equipment and diagnostics are needed to service the different and unique characteristics of each vehicle. For independent repair shops, business is blooming.

Speaker 4: If you're taking your vehicle in for service, recently you've witnessed this firsthand. The bays are full and the parking lots are chock-a-block. And when I speak with our franchisees, they are enthusiastic. Saying demand is robust. It's written all over the numbers. Garages are scheduled further out for shops of all types. Owners see the growth. They know they need technicians. And as you might expect, the rise in the tech count is substantial and the weight of the

Speaker 4: So vehicle repair is a great place to operate for our tools group and for our repair systems and information group, RS&I. And we believe it's only getting better.

Speaker 4: Now let's talk about the critical industries where commercial and industrial, CNI, take Snappan out of the garage, solving paths of consequence, representing our most significant international presence. It's an area where we're, I suppose, most subject to global headwinds, but the news is still reasonably encouraging. The critical industries kept rising across sectors. Aviation, education, heavy duty fleets, general industry and natural resources all up.

Speaker 4: But overall, the critical industry markets of CNI show significant and broad positives. Every sector.

Speaker 4: The first quarter is marked by substantial strides in that arena, and we see more opportunity on the horizon.

Speaker 4: We believe there's abundant and ongoing potential all along our runways for growth. Enhancing the van network, expanding the repair shop owners and managers, extending the critical industry, and building an emerging market. Leveraging our expansive product line, wielding our strengthening brand, and deploying the increasing understanding of the task.

Speaker 4: connecting to the customer, standing face to face in the workplace where the tasks are performed, observing the work, turning that insight into innovative new products, and some in the future for professionals.

Speaker 4: And we amplify that endeavor by applying a generous helping of rapid continuous improvement, or RCI as we call it, driving our productivity and our margin upwards.

Speaker 4: So that's our view of the market.

Speaker 4: Now let's turn to the groups.

Speaker 4: Now let's turn to the groups. In the CNI group.

Speaker 4: Sales at 363.8 million including 12.5 million in unfavorable foreign currency increased 7% to last year. Organic sales were up 11.1% with double digit gains in critical industries and specialty tokens leading the way.

Speaker 4: certainly across geographies. One of the factors that's been attenuating CNI in the recent past was the impact of supply turbulence.

Speaker 4: You heard me say it on the call. The customized kits with many different products are vulnerable to availability disruption. One of the drivers behind the CNI rise were the improvements along the supply chain. During the period, we started to clean the log jams and reduce the impacts. The first quarter is evidence of that progress. For some time, we've said that the demand in critical industries have been strong.

Speaker 4: It continued in the first quarter and that positive is rooted in innovative products designed Specifically for making a difference in critical tasks. One example is our new ATEC quarter-inch drive flex head tech angle micro torque wrench Sure a mouthful, but it's a great product It's aimed directly at the aircraft repair where we're at aircraft repair with a necessity for torque position

Speaker 4: a foot long but less than an inch in diameter, configured to facilitate access deep inside engine compartments. It's also equipped with a 50 degree flex head design, allowing you to avoid obstacles. And it uses our durable 72 tooth gear mechanism, enabling the tool to operate.

Speaker 4: with small rotations when the barriers restrict motion, making it tough to wrench.

Speaker 4: The new ATEC has power.

Speaker 4: significant power, reaching 300 inch pounds, expanding the range by 20%, and increasing the number of applications that the tool can cover, consolidating tasks from multiple devices to one convenient unit, eliminating change over time. That's providing a nice productivity gain.

Speaker 4: The unit has four alert modes.

Speaker 4: LCD, LED, vibratory, and audible.

Speaker 4: Those four prevent over-torquing. Even when the visibility is low and the space is constrained. When combined with the unit's accuracy of plus or minus 2%, the features serve to keep the fastening right on spec.

Speaker 4: The ATEC, accessibility, power and accuracy protects throughout the aviation sector. It's another hit product that helped drive CNI upward in this quarter.

Speaker 4: Well that's CNI. On the rise. Higher sales. Stronger profits. Powerful products.

CNI on the rise, higher sales, stronger profits, powerful products, and more to come.

Now on to the tools group. Sales of 537.0 million. Of 24.9 million. Including 7.1 million of unfavourable foreign currency. Registering a 6.3% organic gain. With high single digit increases in the US and a low single digit rise in the international network. And the operating margin.

Tools Group. Fails of $537.0 million. Of $24.9 million, including $7.1 million of unfavorable foreign currency. Registering a 6.3% organic gain with high single digit increases in the US and a low single digit rise in the international network. And the operating margin? The operating margin.

was 24.5 percent, up 180 basis points, against 80 basis points of unfavorable currency. Boom shakalaka! This was a great number for us. We're really optimistic and encouraged by this. The vehicle repair markets are strong and resilient.

and they trace an ongoing path of abundant opportunity and once again the tools numbers back it up

But beyond the quantitative evidence, I was just with some of our van drivers last week, and their view was incandescently positive. That's the only word I could use. So, without equivocation or without question, we're going to be looking at the data that

They say shops are busy. All our product lines are in high demand and their technician customers are brimming with confidence. It seems like the people of vehicle repair from top to bottom have great expectations for the way forward. That positivity is evident in the continuing enthusiasm.

storage line up.

The 68 inch epic limited edition box, toolbox, we call it the neon stinger. It's generated considerable excitement with its eye catching look, a gloss black body with the newest color in tool storage trim. Neon hives is. I mean this baby pops. Even in a less than bright light.

in say the corner of a repair shop. It stands out anyplace, given the text a chance to make a statement. It's not just the glow.

It also offers a range of powerful functionality. The speed drawer, providing customizable organizations. A power drawer with securable charging space. An LED power top, spanning the entire length of the box, fully illuminating the drawers and the tools, making them shine like the jewels they are.

The Stinger, it also offers 15 power outlets and 6 USB ports, all to ensure the tech's cordless tools, lights, and accessories are always charged and ready to go. I'll tell you, the man was strong and the Stinger was a snap-on million dollar hit product in the blink of an eye.

So the tools group robust demand in all product segments and the momentum train just kept running throughout the quarter

group, robust demand in all product segments, and the momentum train just kept running throughout the quarter. Now let's speak of RS&I.

Sales reached 446.6 million, up 48.4 million or 12.2%, including 6 million in unfavorable foreign currency. Organic activity advanced 13.9%, with double-digit increases in under-car equipment and OEM businesses driving the game.

Two big contributors. ARS and I operating earnings were 104.6 million, rising 14.2% over last year, and the operating margin was 23.4%, up 40 basis points.

Once again, this quarter, software products and subscriptions were a significant plus. Along those lines, our Mitchell One Division, responsible for providing repair information software to independent shops, continue to succeed, pursuing customer connection innovation by bringing great new improvements to shop efficiency. An example is at this year's

meeting of the heavy-duty Technology and Maintenance Council in Orlando, Mitchell 1 introduced our powerful wiring navigation features specifically for trucks. It was immediately clear to large truck professionals that our new software would make it much easier and quicker for technicians to navigate the challenges of electrical issues on today's ever more complex vehicles, whether powered by internal combustion or battery cells.

The feature makes a real difference. It's a significant aid to the truck repair world, enabling quick transition from one wiring diagram to another, following the wire without interruption between views. This is a significant time saver for the techs across the industry, and the shops are noticing. Mitchell 1.

Mitchell One just released another great product.

It's an automated work package function for its collision repair software. The new system gathers into one screen all the relevant information needed for collision jobs, overhaul procedures, illustrations and diagrams, all retrieved with a click of a button, with one click of the button. One of the difficulties in collision repair is that the multi-passage nature of the task is saved by the barcode from the console. TohenkoOMV has developed the feature patch combination with all of its chaindeleteing

You need part details, repair procedures, system diagrams, but that information is usually found in separate places and in varying categories within the vehicle's documentation. Our new system combines the data into a single work package that guides the technician progressively through effective repair. It sounds really simple.

But in fact, the consolidated and comprehensive information eliminates the 20 to 90 minutes that is ordinarily needed to prepare an effective guide for collision repair tasks. We believe the new software will be a big contributor to one's growth.

It's a clear savings in an area that's rising in modern vehicle repair.

With the increase of vehicle automation and the associated growth in sensor networks, collision repair is increasingly more important. And our new feature is right on target to ease the way.

We keep expanding RS&I. We keep expanding RS&I's position with repair shop owners and managers, offering more and more solutions for the day-to-day challenges. Wielding customer connection and innovation, two essential components of Snap-on's value creation.

processes to drive winning new software and hardware. We're confident it's a successful formula and our RSI results reinforce that view. So those are the highlights of our quarter. Continue momentum. Our 11th straight period of year-over-year operating growth. CNI is showing strength.

Gaining against the supply turbulence of today. Arts and I remaining robust, rising with software.

live turbulence of the day. You, us and I, remaining robust, rising with software and hardware.

The tools group, a healthy and enhanced van network aiming for more. Organic sales in a quarter, up 10.2%. Opco operating margin, 22%. And EPS, $4.60, up 15% over last year. A significant increase. It all adds up, it all serves to provide.

clear evidence and powerful testimony that Snap-on has emerged from the great withering of the COVID, stronger than when it entered.

and the enterprise is continuing that upward trend with capability and conviction. It was an encouraging quarter. Now I'll turn the call over to Aldo. Thanks Nick. Our consolidated operating results are summarized on slide 6.

Net sales of $1,183,000,000 in the quarter increased 7.8% from 2022 levels, reflecting a 10.2% organic sales gain, partially offset by $24,000,000 at 240 basis points of unfavorable foreign currency translation. The organic sales increase this quarter includes broad-based gains across all the segments.

From a geographic perspective, we experienced double-digit year-over-year organic sales growth in North America and low single-digit organic gains in Europe . Consolidated gross margin of 49.8% improved 110 basis points from 48.7% last year.

contributions from the increased sales volumes and pricing actions, and benefits from the company's RCI initiatives more than offset the effects of higher material and other costs, as well as 20 basis points of unfavorable foreign currency. While the supply chain environment is somewhat improved.

We believe the corporation continues to navigate effectively costs and other challenges associated with the ongoing conditions.

Operating expenses as a percentage of net sales of 27.8% improved 60 basis points from 28.4% last year.

Operating earnings before financial services of $259.8 million in the quarter compared to $223.1 million in 2022. As a percentage of net sales operating margin before financial services of 22%, improved 170 basis points from last year's first quarter. Financial services revenue of $92.6 million in the first quarter of 2020.

last year. And, as an official told me secretly,

Consolidated operating earnings of $326.1 million in the quarter compared to $293.5 million last year.

As a percentage of revenues, the operating earnings margin of 25.6% improved 80 basis points from last year. Our first quarter effective income tax rate of 23.1% compared to 23.7% last year.

Now let's turn to our segment results for the quarter. Starting with CNI on slide seven, sales of $363.8 million increased from $340.1 million last year, reflecting a $36.2 million or 11.1% organic sales gain, which was partially offset by $12.5 million of unfavorable foreign currency translation. The organic growth primarily reflects double-digit gains in sales to customers in critical industries and in the segment specialty torque business, as well as low single-digit increase in the segment European-based hand tools business.

With respect to critical industries, the sales gains were wide ranging in the quarter. In addition to higher activity across general industry, sales to the military were robust, as were sales to technical education, aviation, and natural resources. Gross margin of 38.8% improved 240 basis points from 36.4% in the first quarter of 2022. This was primarily due to higher sales volumes, including increased activity, and the higher gross margin critical industries, pricing actions, and benefits from RCI initiatives. These improvements were partially offset.

by the effects of higher material and other costs. Operating expenses as a percentage of sales of 23.5% in the quarter increased 50 basis points from 23% in 2022, mostly due to increased sales of higher expense businesses.

Operating earnings for the CNI segment of $55.8 million increased 22.1% from $45.7 million last year.

The operating margin of 15.3% improved 190 basis points from 13.4% last year.

of 15.3%, improved 190 basis points from 13.4% last year. Turning now to slide 8.

Sales in the Snap-on Tools group of $537 million compared to $512.1 million a year ago, reflecting a 6.3% organic sales gain, partially offset by $7.1 million of unfavorable foreign currency translation. The organic sales growth reflects a high single-digit gain in our U.S. business and a low single-digit increase in our international operations.

Sales in the quarter were up year over year in all product lines. Gross margin of 47.3% in the quarter improved 180 basis points from 45.5% last year.

This increase is primarily due to higher sales volumes and pricing actions, lower material and other costs, and benefits from RCI initiatives, partially offset by 80 basis points of unfavorable currency effects.

Operating expenses as a percentage of sales of 22.8% were unchanged from last year.

Operating earnings for the Snap-on Tools Group of $131.7 million, including $6.1 million of unfavorable foreign currency effects, increased $15.7 million from last year, while the operating margin of 24.5%, including 80 basis points of unfavorable currency effects, increased $ Facilities devastation and doustage damage.

improved 180 basis points from 22.7% in 2022. Turning to the RS&I Group shown on slide 9. Sales of $46.6 million increased 12.2% from $398.2 million in 2022, reflecting a 13.9% organic sales gain partially offset by $6 million.

of unfavorable foreign currency translation. The organic gain is comprised of double-digit increases in sales of under-car and collision repair equipment, and in activity with OEM dealerships, and a mid-single-digit gain in the sales of diagnostics and repair information products to independent shop owners and managers. The gross margin of 43.5% declined to 110 basis points from 44...

1.1% improved 150 basis points from 21.6% last year, primarily due to benefits from sales volume leverage and higher activity and lower expense businesses and savings from RCI initiatives. Operating earnings for the RS&I Group of 104.6 million compared to 91.6 million dollars last year. The operating margin of 23.4% compared to 23%.

including $700,000 of unfavorable foreign currency effects compared to $70.4 million in 2022. Financial services expenses of $26.3 million were up $9 million from 2022 levels, including $8.1 million of higher provisions for credit losses. The year-over-year increase in provisions reflects both.

the growth of the portfolio, as well as a return to what we believe to be a more normal pre-pandemic rate of provision. For reference, provisions for finance receivable losses in the quarter were $14.2 million, as compared to $6.3 million in the first quarter last year. In the first quarters of 2019 and 2018, the stock market was $2.3 million.

Provisions for losses were $12.5 million and $15.8 million, respectively.

In addition, the gross worldwide extended credit or finance receivable portfolio has increased 7.5% year-over-year, and we believe that delinquency and portfolio performance trends currently remain stable. As a percentage of the average portfolio, financial services expenses were 1.1% in the first quarter.

of 2023 as compared to 8.8% last year. In the first quarters of 2023 and 2022, the respective average yields on finance receivables were 17.7% and 17.6%. In the first quarters of 2023 and 2022,

The average yields on contract receivables were 8.7% and 8.5%, respectively. Total loan originations of $300.9 million in the first quarter increased.

$55.3 million, or 22.5%, from 2022 levels, reflecting a 25.1% increase in originations of finance receivables and a 9.2% increase in originations of contract receivables.

The increase in finance receivable origination reflects the continued strong demand for big-ticket products sold by our franchisees during the quarter.

receivable origination reflects the continued strong demand for big ticket products sold by our franchisees during the quarter. Moving to slide 11.

Our quarter-end balance sheet includes approximately $2.3 billion of gross financing receivables, including $2 billion from our US operation.

The 60-day plus delinquency rate of 1.5% for U.S. extended credit compares to 1.6% in 2022. On a sequential basis, the rate is down 10 basis points, reflecting the seasonal trend we typically experience between the fourth and first quarters.

As it relates to extended credit or finance receivables, trailing 12-month net losses of $45.1 million represented 2.46% of outstandings at the end of the first quarter.

While this was up 12 basis points from a year ago, it is 45 basis points lower than year-end 2019.

Now, turning to slide 12, cash provided by operating activities of $301.6 million in the quarter compared to $193.9 million last year. The increase from the first quarter of 2022 primarily reflects lower year-over-year increases in working investment, improved net earnings, and lower cash tax and compensation payments. Net cash used by investing activities of $72.9 million.

included net additions to finance receivables of $49.6 million and capital expenditures of $23 million. Net cash used by financing activities of $152.1 million included cash dividends of $86.1 million and the repurchase of 356,000 shares of common stock for $87.2 million.

under our existing share repurchase programs. As of quarter end, we had remaining availability to repurchase up to an additional $345.4 million of common stock under existing authorizations.

Turn to slide 13. Trade and other accounts receivable increased $20.7 million from 2022 year end. Days sales outstanding of 62 days compared to 61 days at 2022 year end. Inventories increased $16 million from 2022 year end. On a trailing 12 month basis.

Inventory turns of 2.4 compared to 2.5 at year end 2022. The growth in inventory primarily reflects higher demand, including inventories to support new products as well as critical industry projects. Additionally, to better assure availability given the dynamics of the current supply chain situation, our level of safety stocks and in-transit parts components and raw materials are also important.

year end 2022.

In addition to cash and expected cash flow from operations, we have more than $800 million available under our credit facilities. As of quarter end, there are no amounts outstanding under the credit facility and there are no commercial paper borrowings outstanding. That concludes my remarks on our first quarter performance.

I'll now briefly review a few outlook items for 2023.

We anticipate that capital expenditures will approximate $100 million. In addition, we currently anticipate that our full year 2023 effective income tax rate will be in the range of 23 to 24%. I'll now turn the call back to Nick for his closing thoughts. Nick? Thanks Alo for that detailed financial review.

Look, well, that's Snafon's first quarter. It is an encouraging performance, demonstrating clearly the breadth, the depth, and the length of our extraordinary advance. The breadth, progress across each of the operating groups.

CNI gaining on the challenge of customized kits amidst supply turbulence and rising above the difficulties of geographic reach in troubled times. Tools Group continuing its upward trend, taking full advantage of the hot, resilient vehicle repair market, reaching yet another margin high. RSNI, riding the wave of vehicle complexity and new model introductions.

registering another quarter of powerful growth. The period was positive all across our enterprise. A quarter also had depth. The record was strong from top to bottom, up and down the P&L. CNI, 11.1% organic growth and the OA margin was 15.3%, up 190 basis points.

RSNI, organic sales rising 13.9% and OI margin a strong 23.4%, 40 points over last year. The tools group, organic activity increasing 6.3%, more in the US, high single digits.

And we spoke of the eye-catching brilliance of the Stinger Toolbox. Remember, I admit, it really pops. Well, something else that pops.

is the tool's OI margin. It's something to catch attention. It pops like a neon sign. 24.5%, up 180 basis points, directly against 80 basis points of unfavorable foreign currency. All that I added up to strength across the corporation.

Organic sales advancing 10.2%, up big, even in the uncertainty. OI margin, 22%, 22% representing a rise of 170 basis points. And the final tally of it all, EPS, it was $4.60, up by a clear distance over any comparison. And finally,

Our performance is marked by length, by the extended positive trend. It was the 11th consecutive quarter of year-over-year operating gain.

performance is marked by length, by the extended positive trend. It was the 11th consecutive quarter of year-over-year operating gain. The world is evolving as we thought it would.

New equipment and software are being needed to follow the acceleration of model change and new technologies. The vehicle repair market is looking like it's approaching a golden age. More technicians, wages rising, collective and individual optimism across the sector. And we saw our momentum extending in the quarter.

a positive view that was confirmed by the voices of franchisees. And moving forward, we believe that the momentum will continue. And we are confident, we're confident that we're positioned to make the most of the abundant opportunities. Growing and improving. We've done it period after period. And we did it again in the first quarter.

confirmed by the voices of franchisees and moving forward we believe that the momentum will continue and we are confident we're confident that we're positioned to make the most of the abundant opportunities growing and improving we've done it period after period and we did it again in the first quarter you see

We do have divisive advantages in our product, authored by customer connection innovation, easing the way for critical tasks, making a clear difference with professionals.

We have an advantage in our brand, marking the serious and the professional.

bringing pride and dignity like no other name. And we have an advantage in our people, our team, challenge tested and fully dedicated and we believe the resilient market and these considerable advantages will enable Snap-on to maintain its momentum and continuous rise into the...

into the second quarter throughout 2023 and well beyond. Now before I turn the call over to the operator, it's appropriate that I speak to our franchisees and associates.

our team

I know many of you are listening.

I know many of you are listening. This quarter is encouraging.

you've given to our team, you have my admiration. And for the unfailing confidence you hold in the Snap-on future.

You have my thanks. Now I'll turn the call over to the operator. Operator?

Yes, thank you. At this time we will begin the question and answer session. To ask a question you may press star then 1 on your touch tone phone. If you are using a speakerphone please pick up your handset before pressing the keys.

To withdraw your question, please press star then 2.

At this time, we will pause momentarily to assemble the roster. This morning's first question comes from Christopher Glynn with Oppenheimer.

Thank you. Good morning, everybody. It was curious, Nick, about the CNI showing some stepped up organic growth there. You talked about the supply chain easing a little bit. So I'm curious if you're seeing past due backlog.

pretty strong. I mean the 11.1% of the increase, you know, by the way it was bigger than that really in the critical industries.

So that wasn't born out of the backlog. Pretty much the backlog is still there. And what you're seeing is, are getting some of the challenges underway. I'm not declaring complete victory over the supply turbulence, but it looks a lot better this quarter than it has in the past. Plus, you've got the military coming back in that period. And the military was down before, so you have those two factors.

Okay, and you know, in the press release you mentioned the Perry continues the snap on value creation process and you referred to considerable capacity for improvement. Could you elaborate on some of the specifics that undergird that statement?

So in the press release you mentioned the PERI continues the SNAP on value creation process and you referred to considerable capacity for improvement. Could you elaborate on some of the specifics that undergird that statement? We have.

We could be a lot more efficient in selling off the vans. This is one of the reasons that's authored our business, going upwards in the tools group on the principal components of driving it upwards. We could do better in that. Our factories could be more efficient because they're chock-a-block. They're up to their eyeballs. We're trying to expand them.

We're working on the expansion and we're pounding the RCI into those expansions. That'll help us quite a bit. You see that. I think in a lot of ways, RCI applies to the product business because as the complexity and repair goes up, it needs new products.

Having a large number of new products really necessitates a real focus on RCI and the actual customer connection and innovation process. We'll drive that through. Fundamentally, we see a lot of opportunities. Our business is sort of like that, Chris. We sort of structurally have opportunities because we have 85,000 SKUs. We're pretty vertically integrated in a lot of places. In some cases, raw steel comes in the back of the factory and through a number of...

Great. If I could sneak one more in, just want to go a little deeper into the military that have been soft for some time and sounds like it's a pretty sharp and, you know, resetting levels there. Just curious if you could give some color on, you know, I think lumpiness is part of the military story.

They're smaller projects. So this is kind of a, we interpret it as an opening of the spigot. Every time I knew, the guys in the military tell me this, every time a new administration comes in, regardless of who it is, there's a new sheriff in town, they raise the, you know, we're gonna have new procedures, the new procedures actually don't work, and so eventually the war fighters say I need tools, and therefore the spigot opens. That's what's happening now. Thank you.

Thank you. The next question comes from Brett Jordan with Jeffries.

Thank you. And the next question comes from Brett Jordan with Jeffries. Hey, good morning, guys. Hey, Brett.

I think you called out sort of strength in some of the higher ticket items. Could you give us some more color on that sort of what the hand tools versus high ticket and then storage versus diagnostics within the higher ticket product mix?

You can use them with the growth this period, you know, so if you're looking for mix, there's really not a mixed story along the product lines. We don't see. If you step back, you look at it, there's a lot of product, particularly hand tools, they're about equal to our growth, give or take, you know, equal to our growth. And in terms of big ticket, you got diagnostics being stronger than tool storage because we just introduced, so we introduced the big Zeus.

with diagnostics this quarter than in past quarters because of the Zeus launch. And then you see hand tools kind of keeping pace with the average. Everybody else, the other cats and dogs will float around in there. Okay, and then a question on the credit business. I mean, obviously, underlying rates have come up and I think your yield was $17.7 or so. Is there the potential to bring your yields up? I mean, can you pass through some of the higher base rates, you know?

in the segment where we play. But our rates have been kind of steady over the decade, not just a year, a decade. And we're funded long, as you probably recall, and therefore we don't have the same upward pressure on our cost of funds for the next several years. So as a result of that, we tend to hold the program steady. So the uptick you see right now really is probably reflective a little bit.

things come down. But you know, how are you seeing that the input cost cadence trending?

So if you look at things, the cost is similar. Similar, this slight pockets of improvement. Everyone's allowed you still have to resort to a spot by and you're looking at materials. So I think the most broadly speaking is I think we said earlier is that there's some improvement. But every day you have to remain agile, flexible, there's always a new challenge when you walk in the door.

So, modest improvement, but still you gotta, you know, bring all your resources to the table to effectively manage it. Okay, great, thank you. Thank you, and the next question comes to Gary Cresopino with Barrington Research. Hey, good morning everyone. Morning, Gary.

I have a question for Aldo, so he's getting the second question. Oh, no. Oh, yeah. Well, I got one for you, too. In the other category, Aldo, there was a $15.2 million, looks like, positive. And you know, if you tax effect that, it's about, I think, 20 cents of earnings, 21 cents of earnings. What exactly is that? How much is that?

I don't know if you're looking at other income, but if we're looking at that, actually, believe it or not, Gary, on the cash that we have on hand, we're earning a much higher level of interest income than what we did last year. You might remember about a year ago, you're getting hardly nothing on your money. Now, effectively, the corporation's earning about 4.75% on whatever cash it does have. Okay, all right, so that explains that. And then, I just want to get a question on the diagnostics and the software.

Nick, are you know it's growing are you finding that? There are shops that and I don't can't believe that this is possible that did not have any diagnostic capabilities that are rapidly adapting it because of the more the electronics on the models or our Our entities just looking to upgrade

and buy a more powerful machine? Well, I think, look, I think the surer, there are shops that don't have diagnostics. I mean, there are guys who think they can do it themselves. And by the way, you can repair it yourself, but it takes more time. And so the more experienced technicians think they can get through it, some of them. Particularly in truck shops, you'll see that more. But generally, diagnostics are an upgrade, and they're upgrading the software. And what happens, the good thing about this, like I say in remarks, is the more drive-by wires.

to keep trying to find the wire in a new view. It's a real puzzle sometimes. And the whole thing about collision, collision is booming. And so writing software for collision, we're kind of, I think, in kind of one of the only few that are trying to do that, and we see that being very positive. So there's a lot of opportunity floating through there. Most of it though, it really depends on the shop. If you're talking about just a vehicle repair shop, most of them are upgrading what they have already.

In some cases, the shop certainly has something. That would be it. In some cases, you're adding technicians that are using more and more diagnostics or don't have a diagnostic now, they're borrowing. In other cases, if you look at truck or collision repair, they're just starting to get diagnostics. That's a little more fertile ground for add. Okay, then as you sell these higher ticket diagnostics.

products, I would assume that the software package that comes with it or is associated with it is also a higher ticket versus the low-end diagnostic? I'll tell you what Gary, I don't know how we can afford to sell it for the price we do, but we do. We view it as a high value. But yes, the software is more... When you buy the when you buy the initial package, you get software for a period of time, like six months.

in the package. And so then, you could take a subscription then that will start after six months, or you can wait till the six months are over and take a subscription, or you can wait till after six months and buy a title. But if you're talking about, let's take a look at a discrete purchase, would be like buy a title, which would be six months of new software.

Zeus is higher than the next level down and the next level down, so it's higher. Just lastly, do you foresee a situation where more EVs proliferate through the car park that you would develop a diagnostic tool that's just specific for EVs?

Sure, but yeah, that's a long time off, Gar, because first what would happen is a diagnostic unit that would handle internal combustion and EVs.

Because they're going to be sharing the space for a long time. They're going to be chewing the same dirt on a highway for a long time. And so the real thing is you're going to need a broad group of that, both in software and tools. That's what's going to happen. Eventually EVs may take over or plug in hybrids or whatever evolves in that situation and that will move the car part. But it's a long wave process. There's no singularity in here.

But once they start to get some presence in the market, you have to start including them in your diagnostic software so that you help the technicians deal with them as you help them deal with the 650 horsepower BMW M5 competition.

Once they start to get some presence in the market, you have to start including them in your diagnostic software so that you help the technicians deal with them as you help them deal with the 650 horsepower BMW M5 competition. Okay, thank you very much.

Thank you. And the next question comes from Elizabeth Suzuki with Bank of America. Great. Thanks for taking my question. First, I wanted to ask about the financing arm. In terms of your outlook, do you see risk to originations if your customers start shifting from some of these bigger ticket items to smaller ticket and as credit conditions more broadly kind of tighten?

Does that have an impact on your customer's ability or willingness to take on additional debt for those large firms? Actually, I don't know. That's a big question. There's a lot of hypotheticals in there. I don't think we see a risk right now. I think it will seem to be robust.

in terms of the big ticket items. One of the messages of our point is, I think I said when we were at the conference, there almost seems to be two economies, the financial economy and the physical economy.

And the physical economy right now seems pretty pumped to me. And so we see, and we see that with the take-up of big ticket items. That expresses their, their, their confidence. Really in past downturns, it hasn't been the rates that's influenced, because our rates stay the same. It hasn't been the rates.

or the actual money of technicians that influences the choice. It's their mental view. You know, to paraphrase what was it, Carl, Jim Carle, in the 1992 election, it's the psychology stupid. And so basically in the great financial recession, we would have said...

Economies gone, uh, blung, repair shops hum and they kept going. And so, yeah, but they were getting up every day and getting bad news for breakfast on all the shows and reading the paper. So, they were worried about taking long-term, long payback items, but they had the money. So, I don't anticipate the money going away.

But they could change their attitude, depending on how much bombardment occurs. I think really that's how we see the world playing out. Repair is essential, it keeps going. But the mentality of the customers can shift between big ticket and small ticket. We saw, I mean if you want evidence, you can go back to just out of the.

the COVID coming out of the COVID everybody had money and garages and never stopped but they were they were focusing on small ticket items not big ticket. Then when they started to get more comfortable and they had they had the psychological recovery and exhilaration they started to go big tickets that's what we see now.

It certainly makes sense that the sentiment is a little different here on Wall Street than it is on Main Street. Thank you for that. Okay. Thank you. And the next question comes from Scott Stember with Roth M-Hamm.

Good morning, guys. Good morning, Scott.

Nick, you're talking about how collision is booming. I just wanted to flesh that out a little bit, how much of it is just...

from I guess a volume standpoint at the collision level, which I guess you could see with increased purchases on the car or just collision equipment versus increased demand of diagnostics for ADAS.

for the collision side?

is people are more and more interested in, as we go forward, in the sort of like the ADAS situation where you're talking about calibration and setting the neural network of sensors. And also things like we talked about with Mitchell 1 with the special collision focused software. Because people are seeing that job more and more. Two things are happening, three things are happening I suppose. The first one is a lot of different materials in a car now, so you just can't bend steel. You have to cut different, you know, like carbon fiber and so on. So there's a lot of different physical products that we sell that make that. That's a long standing trend. And then as the neural networks have become more, you know, ubiquitous, they need a lot more software and hardware that's focused on that to recalibrate and do that. And then thirdly, collision jobs, collision shops are getting more jobs. Because the collision is taking more time. If you don't think that, hammer your, when you hammer your bumper, see how much it costs you, how long it takes you to get it replaced. Those are taking more time. So there's more work for collision shops. So they're seeing three factors. One, the materials. Two, the addressing the neural network. And three, just handling the volume and getting productivity. Got it. And housekeeping in the tool segment, sell into the VAN channel versus sell through. Were they pretty much in line?

They were in line, you know, pretty well balanced this quarter. You know, they go up and down, but we're pretty much feel as though they're kind of matching up. And they have. They fluctuate from quarter to quarter, but this quarter is pretty evenly keeled. Maybe there's a little bit more selling off the van that's selling into the van. Maybe a little bit, but not any uncertainty.

in line, you know, it's pretty well balanced this quarter, you know, they go up and down, but we're pretty much feel as though they're kind of matching up, and they have. They fluctuate from quarter to quarter, but this quarter is pretty evenly keeled. Maybe there's a little bit more selling off the van that's selling into the van, maybe a little bit, but not any insignificant. So, our footprint bill is pretty solid.

All right, and just last question, just going back to Brett's question about the, I guess the composition of the tools group. It sounds if tools were up, or hand tools were up in line with the overall segment. Can you maybe just talk about anything to point out new products out there? Is it different selling tactics? Is it bundling of certain things? Just trying to see what's behind that. Well, it's a lot of different things. I mean, fundamentally, the big kahuna in the tools group this time is.

is this plus a big ticket. So that's rolling through that business. And so that's the thing that gets your attention. I talked about this neon stinger. Now I really meant it, you know, it was flying off the shelf. We showed her that our kickoffs and people loved it because...

And technicians want to make a statement, so tool storage has got some nice products. You have new models and diagnostics that's driving that. You have some really nice innovations in tool storage. In hand tools, you have a number of different things, some of which are things like new pliers. We have a range of new pliers that everybody loves. I was talking to the franchisees, like I said, a couple weeks ago, and these guys whipped out these pliers and started talking about...

like trucks, they really need a lot of power, so that sockets have to be of a different dimension. Less hard, but stronger, thicker walls, and those kinds of things. So we see those coming out, maybe focused on the truck shop. So those are the kinds of things that are driving the situation. But it's always that way, there's always a story around product. Got it, that's all I have, thanks guys. Okay.

Thank you. And the next question comes to David McGregor with Longbow Research. Good morning everyone. Thanks for taking the questions. Hi. Let me start off by just asking about the revenue mix overall. Are you seeing a shift in the percentage of revenues from technicians versus independent garage owners and dealerships? Not really. I mean you could say this. Let me say this.

Only in this way, not in the tools group for sure. I don't see it in the tools group. You could argue that, all right, you tend to get garage owners who are also technicians.

they are the probably number one buyer of a Zeus Plus. So in that way you might see more of that, but every time you roll out the top of the line diagnostic unit, you're seeing that. So adjusting for our expectations in that way, I don't see any change in the tool script. If you go to Arts and I.

While repair software and diagnostic sales to independent repair shops were up, the two big pounders in the RS&I was the OEM businesses following the new models. The equipment is split between...

pretty much equally between garages and independents. So generally you'll see a slight shading toward OEM garages on the RSNI side. You won't see any, much of a mix change on the tool side, except for the fact that...

That Zeus Plus seems to always, the big Kahuna, always sells, has a strong shop buy. That's pretty much it. Other than that, we don't see any change. Just stay on the garage owners for a minute, Nick. Your contract receivables up 9.2%. Your sense that garage owners are maybe starting to face a little more difficulty securing credit and returning to staff. What the hell are you talking about right now, Nick?

of bad, you know, the higher credit maybe, but I'm not hearing it.

I don't know, you're a windshield guy too. I don't hear it in my windshield surveys, nobody's saying that. I mean, I would just offer our impression was.

based on how our franchisees are and how our How they say the technicians are is the balance sheets are pretty robust So yeah, that might happen, but I don't think we're seeing it happen now

I don't think that's occurring right now. I think this is a pretty robust sector. We didn't see them get manipulated during the Great Penandian O Okay.

Thanks for that. And then just on storage and maybe any of the other categories where you've got large backlogs, can you just give us some sense of you know, how far back those backlogs are extending and move on. Right, but that's why we're spanning the factories. Look that is, I was at these franchisees, I don't know you can take this for how many grand of salt you wish, but these guys are telling me they can sell every tool storage box they get. Yeah, now back loads go back. I don't want to really get into that at Star Report, but it's pretty substantial.

enhancing our factories in all categories really. Virtually all of our product lines are up to our eyeballs and trying to turn out the factories, but the one that shapes us the most is tool storage because everywhere we go people say, I need more, I need more, I need more. Is there a reason then Nick why at the regional kickoffs you were offering discount.

In reality, David, our franchisees are conditioned to sell off a kind of deal. Our art is to make that deal attractive but leaner or richer depending on how we want to move the product. Last question for me is just

I guess given the strength in big ticket sales, Nick, combined with whether you're on Wall Street or Main Street, there's a slowing macro out there. I guess what gives you confidence you aren't pulling forward technician purchasing power that adversely impacts hand tool sales and future growth at some point down the road? I actually don't worry so much about hand tools.

I don't. I mean, we've...pantheils have been strong come hell or high water, you know.

I mean, I think, I mean, I've only been here 15 years, so maybe, you know, it's not long enough. But the thing is, it seems, though, hand tools, if you're talking about the longer payback items like I was talking about Liz, you know, some sooner or later, sometimes the psychology of it all breaks through.

Even the guys who are working every day and pulling in the money. They say I want to I want to keep my powder dry for a while sometimes But that's a psychological balance, which I think right now There's tremendous reservoirs of optimism in the people of work It's different than the big companies, you know If you look at if you look at the if you look at the National Association manufacturers and you look at small manufacturers versus large manufacturers

There's all of a sudden a big divide between them in terms of their optimism their outlook The small guys have almost never been hired But I think this is part of what it is I think there's a lot of talk as you say there's a lot of talking justly so I'm not saying it's wrong or anything like That but when you walk in when I walk into a garage or meet the franchisees, they're saying Who's this guy? You know this guy pow I don't even know who he is

Well it was a good quarter, congratulations Nick. Thank you. Thank you. Thank you. And the last question comes from Luke Young with Baird. Thanks for getting me in here. Nowhere maybe a little limited for time so I'll just ask one question today and what I was really hoping to understand is Nick or Aldo if you could just unpack the gross margin gains we saw both in the tools group and see and I this quarter a little bit more.

Especially when I'm hoping to understand how much normalization we're seeing right now in the margin in terms of price And what's going on with material cost and whether you think that's sustainable or even there might be more opportunity as we go from here Well look, I like to do this, so I'll do this.

understand how much normalization we're seeing right now in the margin in terms of price and what's going on with material cost and whether you think that's sustainable or even there might be more opportunity as we go from here. Thanks. Well, look, I like to do this. I'll do this. Look, in CNI it's simple.

Critical Industries, boom shakalaka. Critical Industries are the highest margin business in that area. And the margins are robust. And they did pretty well. And like we talked about the military, you know, and I don't know if you heard that call, but the military tends to be is the base by base type of product we're getting that's moving it. And that tends to be pretty good.

You know, so I think that's one factor you're seeing there that's pretty strong. They were up, the critical industries were up greater than the 11%.

And that's what drove the margins, I think, principally. There were other things. I mean, another thing is is that generally the supply chain is

is getting better. But you know, some of the stuff, you know, you go out and buy a whole bunch of stuff on, when you buy spot buys, you buy a lot because you don't wanna have to not have them. So some of that stuff's working its way through. So it's a very complex mix. We are seeing some abatement. That should continue.

But mostly the big factor there, the 190 basis points, had to do with critical industries doing well. The customized kits are great for us and they sold. We broke some of the bottlenecks and we did well in that situation. So that's CNI. If you look at Tools Group, there's no product mix story that I think guys will wonder.

If there were, it wasn't that. But it is the fact that there is an attenuation in the commodities. So the commodities, which Tools Group is very vertically integrated, so they buy commodities in a lot of situations. So they get a nice pop from that. And so they're getting some improvement in that situation. Of course, they're taking their foot off the pricing in concert with that. And then the Tools Group has been hammering away at RCI. So you see a lot of that happening in this situation. So we think.

The whole thing is sustainable. Now, you know, I'm not telling you that the OI margins for those were going to be the same next quarter But we don't think they can't. We believe they could go higher. Not necessarily next quarter, but we think there's room to move up from RCI and a rationalization of the situation.

Great, thanks for that Nick. Thank you. This concludes the question and answer session. I would like to return the floor to Sarah Vorposki for any closing comments. Thank you all for joining us today. A replay of this call will be available shortly on Snap-on.com. As always, we appreciate your interest in Snap-on. Good day. Thank you. The conference is now concluded. Thank you for attending today's presentation and we now disconnect your lines.

You.

there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touchtone phone. To withdraw your question, please press star, then two. Please note, today's event is being recorded. I would now like to turn the conference over to your host today, Sarah Vierbski, Vice President, Vesta Relations. Ma'am, please go ahead. Thank you, Keith, and good morning, everyone. Thank you for joining us today to review Snap-on's first quarter results.

which are details in our press release issued earlier this morning. We have on the call today Nick Pinchuk, Snap-On's Chief Executive Officer, and Aldo Taliari, Snap-On's Chief Financial Officer. Nick will kick off our call this morning with his perspective on our performance. Aldo will then provide a more detailed review of our financial results. After Nick provides some closing thoughts, we'll take your questions. As usual, we have 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.com, under the Investors section. These slides will be archived on our website along with a transcript of today's call. Any statements made during this call relative to management's expectations, estimates, or beliefs, or 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, Sarah. As usual, good morning everybody. Good morning. As usual, I'll start the call by covering the highlights of the first quarter and I'll give you my perspective on what it all means. And then ALDO will provide a detailed review of the financials. Along the way, we'll cover the markets. The robust gangbusters..

We'll also give you a view of our momentum. It's been unbroken and vibrant. Once again, the story of our quarter is continued resilience. Our ability to navigate the complex while knowing that with the flip of a calendar will bring new challenges. You can pick up any significant publication or listen or watch any business show and you'll encounter a barrage of concerns, a message of adversity and contraction.

our momentum. It's been unbroken and vibrant. Once again the story of our quarter is continued resilience. Our ability to navigate the complex while knowing that with the flip of a calendar will bring new challenges. You can pick up any significant publication or listen or watch any business show and you'll encounter a barrage of concerns, the measures of adversity and contraction but we know.

We can resist the difficulties, and so we have for the past three months and for quarter after quarter. You see, we're armed with significant advantages. Our markets displaying resilience, born out of criticality. Our brand standing above, delivering quality and reinforcing personal pride. Our products, they clearly move the world forward by making the critical easier. And finally...

the difficulties and so we have for the past three months and for quarter after quarter. You see we're armed with significant advantages. Our markets displaying resilience, born out of criticality. Our brand standing above delivering quality and reinforcing personal pride. Our products they clearly move the world forward by making the critical easier and finally our people.

Our team, experienced, capable and confident. We are encouraged by this quarter and I'll tell you why. Our reported sales in the period were 1 billion, 183 million, up versus last year by 85.2 million or 7.8% including 24 million or 240 basis points of unfavourable foreign exchange.

Organic sales, they were up 10.2%. Increases in every group. Our 11th consecutive quarter of year-over-year operating expansion. Our operating income for the quarter was 259.8 million including 7.6 million of unfavorable foreign currency increasing by 16.5%.

And the operating margin? The operating margin. It was 22%, rising 170 basis points over last year. For financial services operating income of 66.3 million compared to last year's 70.4 million. And that combined with OPCO, and that combined with OPCO resulted in a...

consolidated operating margin of 25.6%, and 80 basis point improvement. And the first quarter's EPS? $4.60. Up 60 cents or 15% from last year's $4.

So we believe our confidence and our ongoing optimism is clearly justified by the numbers. Now let's look closer at our markets. The automotive repair environment remains hot. Demand across all disciplines. We continue investing in new products and accommodating repair challenges of newer models, matching the increased complexity. As platforms change......

The modification requires new tools to accomplish the task and we're keeping pace. Whether it's an internal combustion engine or an electric vehicle, the techs need an assist and we're ready to bring it. The updates create a range of challenges, new challenges. From accessibility issues associated with confined spaces requiring new designs of varying geometries to tighter engineering challenges fueling the need for precision torque instruments to the increasing number of fasteners enlisting our power tools to remove and install parts efficiently.

to the rise of drive-by-wire. The more electronics, the greater the need for handheld diagnostics and special software that can communicate with and manage the neural network of computers and sensors.

We're seeing strength in OEM dealerships. As new models break onto the market, new arrays of essential tools, equipment and diagnostics are needed to service the different and unique characteristics of each vehicle. For independent repair shops, business is blooming. If you're taking your vehicle in for service, you're going to need to have a vehicle that

Recently, you've witnessed this firsthand. The bays are full and the parking lots are chock-a-block. And when I speak with our franchisees, they are enthusiastic. Saying demand is robust. It's written all over the numbers. Garages are scheduled further out for shops of all types. Owners see the growth. They know they need technicians. And as you might expect, the rise in the tech count is substantial, and the wages are moving up. And you know, of course.

This is all music to our ears. We believe that with the new vehicle models, the rise of automation, the growing need for precision and the increasing vehicle complexity, we may be entering the golden age of vehicle repair and our numbers say it may be so. So vehicle repair is a great place to operate for our tools group and for our repair systems and information group, RS&I. And we believe it's only getting better. We believe it's only getting better. We believe it's only getting better.

Now let's talk about the critical industries where commercial and industrial, CNI, take Snap-on out of the garage, solving tasks of consequence, representing our most significant international presence. It's an area where we're, I suppose, most subject to global headwinds, but the news is still reasonably encouraging. The critical industries kept rising across sectors. Aviation, education, heavy duty fleets, general industry and natural resources all up. And the military, once down.

is now rebounding with high demand. And for geographies, North America was strong. Europe was improved even in the face of the ongoing war in Ukraine and the revenue disruptions of Brexit, and Asia-Pacific remained mixed. Variation across the landscape. But overall, the critical industry markets of CNI show significant and broad positives. Every sector.

The first quarter is marked by substantial strides in that arena, and we see more opportunity on the horizon.

extending to critical industry and building an emerging market, leveraging our expansive product line, wielding our strengthening brand and deploying the increasing understanding of the task, connecting to the customer, standing face to face in the workplace where the tasks are performed, observing the work, turning that insight into an innovative new product and summon the future for professionals. Can we amplify that?

unfavorable foreign currency increased 7% to last year. Organic sales were up 11.1% with double digit gains in critical industries and specialty tort that precision leading the way. CNI's operating income of 55.8 million including 2 million of unfavorable foreign currency represents an increase of 22.1% over last year and the opposite of the previous year.

that's been attenuating CNI in the recent past was the impact of supply turbulence. The customized, you heard me say it on the call, the customized kits with many different products are vulnerable to availability disruption and one of the drivers behind the CNI rise were the improvements along the supply chain. During the period we started to clean the log jams and reduce the impacts. The first quarter is evidence of that progress.

For some time, we've said that the demand in critical industries have been strong. It continued in the first quarter. That positive is rooted in innovative products designed specifically for making a difference in critical tasks. One example is our new ATEC quarter-inch drive flex head tech angle microtorque wrench. It's through a mouthful, but it's a great product. It's aimed directly at the air-care repair, where the necessity for torque precision is rising. The need for power is increasing, and repair in tight spaces is becoming more common.

Our new unit works on all three fronts. The new wrench is almost a foot long, but less than an inch in diameter, configured to facilitate access deep inside engine compartments. It's also equipped with a 50 degree flex head design, allowing you to avoid obstacles. It uses our durable 72 tooth gear mechanism, enabling the tool to operate with small rotations when the barriers restrict motion, making it tough to wrench.

The new A-Tech has power, significant power, reaching 300 inch pounds, you know, it's expanding the range by 20% and increasing the number of applications that the tool can cover, consolidating tasks from multiple devices to one convenient unit, eliminating change over time.

That's providing a nice productivity gain. The unit has four alert modes, LCD, LED, vibratory, and audible.

Those four prevent over-torquing, even when the visibility is low and the space is constrained. When combined with the unit's accuracy of plus or minus 2%, the features serve to keep the fastening right on spec.

The ATEC, accessibility, power and accuracy protects throughout the aviation sector. It's another hit product that helped drive CNI upward in this quarter.

Well that's CNI on the rise, higher sales, stronger profits, powerful products and more to come. Now on to the tools group.

sales of 537.0 million 24.9 million including 7.1 million of unfavourable foreign currency registering a 6.3 percent organic gain with high single digit increases in the in the US and a low single digit rise in the international network and the operating margin

The operating margin was 24.5 percent, up 180 basis points, against 80 basis points of unfavorable currency. Boom, shack-a-lacka! This was a great number for us. We're really optimistic and encouraged by this. The vehicle repair markets are strong and resilient, and they trace an ongoing path of abundant opportunity. Once again, the tool's numbers back it up.

But beyond the quantitative evidence, I was just with some of our van drivers last week, and their view was incandescently positive. That's the only word I could use. Without equivocation or without question, they say shops are busy. All our product lines are in high demand, and their technician customers are brimming with confidence. It seems like the people of vehicle repair are from top to bottom. For more information, visit www.fema.gov

have great expectations for the way forward. And that positivity is evident in the continuing enthusiasm for big tickets, longer payback items, diagnostics, and tool storage boxes. They continue to be major contributors to our results. You can see it in the discuss of the top-of-the-line Zeus Plus handheld diagnostics unit. You can find it in the reception of our latest addition to the Epic Tool storage lineup.

It stands out to any place, given the tech's chance to make a statement. And it's not just the glow. It also offers a range of powerful functionality. The speed drawer providing customizable organizations. A power drawer with securable charging space. An LED power top spanning the entire length of the box, fully illuminating the drawers and the tools, making them shine like the jewels they are.

So the tools group robust demand in all product segments and the momentum train just kept running throughout the quarter Now lets speak of RSNI

Sales reached 446.6 million, up 48.4 million or 12.2%, including 6 million in unfavourable foreign currency. Organic activity advanced 13.9%, with double-digit increases in under-car equipment and OEM businesses driving the game.

Two big contributors. ARS and I operating earnings were 104.6 million, rising 14.2% over last year, and the operating margin was 23.4%, up 40 basis points.

Once again, this quarter, software products and subscriptions were a significant plus. Along those lines, our Mitchell One division, responsible for providing repair information software to independent shops, continue to succeed, pursuing customer connection innovation by bringing great new improvements to shop efficiency. At this year, an example is at this year...

challenges of electrical issues on today's ever more complex vehicles, whether powered by internal combustion or battery cells. The feature makes a real difference. It's a significant aid to the truck repair world, enabling quick transition from one wiring diagram to another.

following the wire without interruption between views. This is a significant time saver for the techs across the industry, and the shops are noticing. M chemicals one

Well, Admitu One just released another great product. It's an automated work package function for its collision repair software. The new system gathers into one screen all the relevant information needed for collision jobs, overhaul procedures, illustrations and diagrams, all retrieved with a click of a button, with one click of the button. One of the difficulties in collision repair is that...

the multifaceted nature of the task. You need part details, repair procedures, system diagrams, but that information is usually found in separate places and in varying categories within the vehicle's documentation. Our new system combines the data into a single work package that guides the technician progressively through effective repair. You know, it sounds really simple.

But in fact, the consolidated and comprehensive information eliminates the 20 to 90 minutes that's ordinarily needed to prepare an effective guide for collision repair tasks. We believe the new software will be a big contributor to one's growth. It's a clear savings in an area that's...

that's rising in modern vehicle repair. With the increase of vehicle automation and the associated growth in sensor networks, collision repair is increasingly more important. And our new feature is right on target to ease the way. We keep expanding in RS&I. In RS&I, we keep expanding RS&I's position with repair shop owners and managers, offering more and more solutions for the day-to-day challenges, wielding customer connection and innovation, two essential components of Snap-on's value creation, processes to drive winning new software and hardware. We're confident it's a successful formula, and RS&I results reinforce that view.

So those are the highlights of our quarter. Continued momentum, our 11th straight period of year over year operating growth. CNI showing strength, gaining against the supply turbulence of today. RS&I remaining robust, rising with software and hardware. The tools group, a healthy and enhanced fan network aiming for more. Organic sales in a quarter, up 10.2%. Opco operating margin, 22% and EPS, $4.60. Up 15% over last year, a significant increase.

It all adds up, it all serves to provide clear evidence and powerful testimony that SNAPON has emerged from the great withering of the COVID, stronger than when it entered, and the enterprise is continuing that upward trend with capability and conviction. It was an encouraging quarter. Now I'll turn the call over to Aldo. Thanks Nick. Our consolidated operating results are summarized on slide 6.

From a geographic perspective, we experienced double digit year-over-year organic sales growth in North America and low single-digit organic gains in Europe . Consolidated gross margin of 49.8% improved 110 basis points from 48.7% last year. Contributions from the increased sales volumes and pricing actions and benefits from the company's RCI initiatives more than offset.

the effects of higher material and other costs, as well as 20 basis points of unfavorable foreign currency. While the supply chain environment is somewhat improved, we believe the corporation continued to navigate effectively costs and other challenges associated with the ongoing conditions.

Operating expenses as a percentage of net sales of 27.8% improved 60 basis points from 28.4% last year. Operating earnings before financial services of $259.8 million in the quarter compared to $223.1 million in 2022. As a percentage of net sales operating margin before financial services of 22%, improved 170 basis points from last year's first quarter.

Financial Services revenue of $92.6 million in the first quarter of 2023 increased 5.6% compared to $87.7 million last year.

Operating earnings of $66.3 million decreased $4.1 million from 2022 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 $326.1 million in the quarter compared to $293.5 million last year. As a percentage of revenues, the operating earnings margin of 25.6% improved 80 basis points from last year. Our first quarter effective income tax rate of 23.1% compared to 23.7% last year.

Net earnings of $248.7 million or $4.60 per diluted share, including 12 cents of unfavorable impact associated with foreign currency, increased $31.3 million or 60 cents per share from 2022 levels, representing a 15% increase in diluted earnings per share. Now let's turn to our segment results for the quarter. Starting with C&I on slide seven.

Sales of $363.8 million increased from $340.1 million last year, reflecting a $36.2 million or 11.1% organic sales gain, which was partially offset by $12.5 million of unfavorable foreign currency translation. The organic growth primarily reflects double-digit gains in sales to customers in critical industries and in the segment's specialty torque business, as well as low single-digit increase in the segment's European-based hand tools business. With respect to critical industries, the sales gains were wide-ranging in the quarter.

In addition to higher activity across general industry, sales to the military were robust, as were sales to technical education, aviation, and natural resources.

Gross margin of 38.8% improved 240 basis points from 36.4% in the first quarter of 2022. This is primarily due to higher sales volumes, including increased activity in the higher gross margin critical industries, pricing actions and benefits from RCI initiatives.

These improvements were partially offset by the effects of higher material and other costs. Operating expenses as a percentage of sales of 23.5% in the quarter increased 50 basis points from 23% in 2022, mostly due to increased sales and higher expense businesses. Operating earnings for the CNI segment of $55.8 million increased 22.1%.

from $45.7 million last year. The operating margin of 15.3% improved 190 basis points from 13.4% last year.

Turning now to Slide: eight sales in the snap on toolsgroup of 537 million LL, compared to five welve one thousand a year ago, reflecting a 6% organic sales gain partially offset by seven point million dollars of unfavorable foreign currency translationthe organic sales growth reflects a high single disig gain in our? U's business and a low singleig.

higher sales volumes and pricing actions, lower material and other costs, and benefits from RCI initiatives partially offset by 80 basis points of unfavorable currency effects.

Operating expenses as a percentage of sales of 22.8% were unchanged from last year.

from 22.7% in 2022. Turning to the RS&I Group shown on slide nine. Sales of $46.6 million increased 12.2% from $398.2 million in 2022, reflecting a 13.9% organic sales gain, partially offset by $6 million of unfavorable foreign currency translation. The organic gain is comprised of double-digit increases in sales of undercar and collision repair equipment, and in activity with OEM dealerships, and amidst single-digit gain,

in the sales of diagnostics and repair information products to independent shop owners and managers. Gross margin of 43.5% declined 110 basis points from 44.6% last year, primarily due to increased sales in lower gross margin businesses and the effects of higher material and other costs. These declines were partially offset by benefits from pricing actions and savings from RC&I initiatives, as well as 30 basis points of favorable foreign currency effects. Operating expenses as a percentage of sales of 20.1% improved.

150 basis points from 21.6% last year, primarily due to benefits from sales volume leverage and higher activity and lower expense businesses and savings from RCI initiatives. Operating earnings for the RSNI group of $104.6 million compared to $91.6 million last year.

The operating margin of 23.4% compared to 23% reported a year ago. Now turning to slide 10.

Revenue from financial services of $92.6 million increased from $87.7 million last year, primarily reflecting the growth of the loan portfolio. Financial services are operating earnings of $66.3 million, including $700,000 of unfavorable foreign currency effects compared to $70.4 million in 2022.

Financial Services expenses of $26.3 million were up $9 million from 2022 levels, including $8.1 million of higher provisions for credit losses. The year-over-year increase in provisions reflects both the growth of the portfolio as well as a return to what we believe to be a more normal pre-pandemic rate of provision. For reference, provisions for finance receivable losses in the quarter were $14.2 million as compared to $6.3 million in the first quarter last year.

In the first quarters of 2019 and 2018, provisions for losses were $12.5 million and $15.8 million, respectively. In addition, the gross worldwide extended credit or finance receivable portfolio has increased 7.5% year over year, and we believe that delinquency and portfolio performance trends currently remain stable. As a percentage of the average portfolio, financial services expenses were 1.1%

and 8.5% respectively. Total loan originations of $300.9 million in the first quarter increased.

$55.3 million, or 22.5%, from 2022 levels, reflecting a 25.1% increase in originations of finance receivables and a 9.2% increase in originations of contract receivables.

The increase in finance receivable origination reflects the continued strong demand for big-ticket products sold by our franchisees during the quarter. 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 60-day-plus delinquency rate of 1.5 percent per U.S. extended credit compares to 1.6 percent in 2022. On a sequential basis, the rate is down 10 basis points, reflecting the seasonal trend we typically experience between the fourth and first quarters.

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