Snap-On Incorporated

Please stand by. Good day, ladies and gentlemen, and welcome to the Snap-on Second Quarter 2020 Results Investor Conference Call. Please note that today's call is being recorded, and at this time, I would like to turn the conference over to Sarah Verbsky, VP of Investor Relations.

Please go ahead. Thank you, Kathy, and good morning, everyone. Thank you for joining us today to review Snap-on Second 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 Pagliari, 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've provided slides to supplement our discussion. These slides can be accessed under the Downloads tab in our webcast viewer as well as on our website, snap-on.com, under the Investor section. These slides will be archived on our website along with the transcript of today's call. Any statements made during this call relative to management's expectations, estimates, or beliefs, or otherwise state management's or the company's outlook, plans, or projections are forward-looking statements, and actual results may differ materially from those made in such statements. Additional information and the factors that could cause our results to differ materially from those in 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, including a reconciliation of non-GAAP measures, is included in our earnings release and in our conference call slides on pages 14 through 16. Both can be found on our website. With that said, I'd now like to turn the call over to Nick Pinchuk. Nick?

Thanks, Sarah. Before we get going, I want to thank the members of the Snap-on team. It's clear in this turbulence that they are among the special contributors who keep society intact when our days are dark. And in that essential challenge, we're prioritizing the health, safety, and well-being of our associates, franchisees, customers, and communities. Working from home. And when that's not possible, and there's a number of those instances, distancing, using personal protective equipment, cleaning deep and often, staggering shifts and breaks, paying quick attention to symptoms, and pursuing contact tracing. We've worked hard to stay safe. But throughout this time, we're also invested in a investing in a continuing stream of essential new products. We've also invested in a continuing stream of essential new products, reinforced our brand, and strived to maintain our team. The people of Snap-on are a great advantage. We're working hard to preserve them in the turbulence, and we'll continue to do so. For our franchisees, we're active in helping, reaching out on a regular basis to understand their needs and those of their customers. When the virus passes, We know there'll be even more opportunities. We want our associates and our franchisees at full strength to capitalize on the possibilities. We now project that the virus plays out in three phases. First, the initial shock. A substantial interruption of activity at both the franchisee and the customer level. This was evident in late March and in April. Second, an accommodation period. as operations and individuals develop more and more ways to safely pursue their opportunities against the COVID-19 environment. In fact, we appear to be seeing that effect through May, June, and onward. And of course, we've actively participated in that process, broadcasting best practices, working hard to accelerate the comeback. Finally, the third phase, psychological recovery. Following a return to normal, customers will need to regain confidence in the future before they resume full buying participation. And in that recovery, we see great opportunities. As driving is restored and becomes even more popular, even more essential. This overall construct represents what we consider to be the general shape of the way forward. It does represent a continuing upward trend, but the slope of the ascension isn't clear. And of course, the psychological recovery phase will be greatly influenced by the ongoing evolution of the virus. Nobody knows the future for sure, but we are encouraged by what we've seen so far. Looking back, April was the nadir. But as the quarter progressed, we showed continual recovery. Our businesses did learn to better accommodate the pandemic. Both sales and profitability improved sequentially in May and in June. Although the virus is still with us, it appears that the situation may be evolving just as we projected. As we said at the end of April, the impact of COVID-19 varies across our operating landscape. Asia remains virus challenged. Japan, South Korea, and China do appear to have weathered the worst, but Southeast Asia and India are still in deep turbulence. And in Europe, the overall economic weakness present before the pandemic, in combination with the virus, has made for the deepest distress of all. Beyond geographic differences, we're also seeing that our face-to-face businesses, the mobile vans and the direct sales forces are faring somewhat better compared with other models. Snap-on's traditional strength, personal selling, appears to be an effective foundation for limiting the difficulty. In that way, we believe we have the resilience and the resources to weather this challenge as Snap-on has So many times in the past. Actually, over the years, we've seen this movie before. Natural disasters, Superstorm Sandy, hurricanes, Harvey and Katrina, and the Great Recession of 2009. And each time we learn to accommodate and emerge stronger. And we've taken the lessons of those disruptions and applied them with positive effects to this time of the virus. You know, I love to say this. Snap-on has paid a dividend every quarter since 1939, and it's never reduced it, and this quarter was no different. That record stands as evidence of our ongoing resistance to challenge. And beyond just maintaining, we believe our continuing investment in new products, in our franchisees, and in our team in the midst of the storm will once again make us stronger as the environment recovers. We do believe in the opportunities going forward, and because of that, We're keeping our focus on Snap-on value creation, safety, quality, customer connection, innovation, and rapid continuous improvement. That emphasis is particularly evident in customer connection and innovation. We're continuing with the stream of new products. We believe the green shoots of accommodation and psychological recovery will grow, and we're gonna be ready. Well, that's the overview. Now let's turn to the results. Second quarter, as reported, sales were $724.3 million, down 23.9%, including $14.4 million, or 120 basis points impact from unfavorable foreign currency, and an organic sales decline of 22.9%. From an earnings perspective, OPCO OI for the quarter of $91.1 million, including $5.8 million of direct costs associated with the virus, $4 million, of restructuring charges principally focused on Europe, and 3.8 million of unfavorable foreign currency effects compared to 189.9 million in 2019. OPCO operating margin was 12.6%, and the ads adjusted level, excluding restructuring charges, was 13.1%. For financial services, operating income of 57.6 million was down from last year's 60.6%. Overall EPS on an as-reported basis was $1.85 compared to $3.22 last year. Excluding the restructuring charges, the as-adjusted EPS was $1.91. Well, those are the overall numbers. Now let's turn to the groups. In C&I, volume in the second quarter of $261.9 million, including $6.9 million of unfavorable foreign currency, was down versus last year's $335 million. primarily on double-digit clients in all of the segment's operations, reflecting the effect of COVID-19 and the ongoing economic weakness in Europe. From an earnings perspective, C&I operating income of $22.9 million decreased $26 million, including $3 million of virus-related costs, $2 million of restructuring, and $1.9 million of unfavorable foreign currency effects. There was a clear point of light in C&I. Our direct sales to customers in the critical industries fell still down, was less effective than other areas across the group. Military and international aviation continued to register growth. And heavy truck, as you might expect, was down but was reasonably resilient, while other segments such as oil and gas and education, no surprise, there were no students. Both those industries were significantly impacted by the pandemic and experienced substantial contractions. But we do remain confident in and committed to extending in the critical industries, and we do see growing opportunity there moving forward. Speaking of the future, let's talk about creating new products. Just this quarter, we introduced another one of our great 14.4-volt units, the new CTS 825 quarter-inch hex cordless screwdriver. Our brushless powertrain makes for higher torque, more run time, longer motor life. The driver has a nine-position clutch, giving techs just the proper amount of torque for the job, all packaged with a dual-range gearbox and a built-in brake that prevents this powerful tool from throwing fasteners. That's a significant safety feature. The new screw gun also features an ergonomically designed cush grip handle for great tech comfort and twin LED lights to clearly illuminate the work area. After only a couple of months, it's already essential where work is critical. It was launched in April, a tough month, but it's already one of our hit million-dollar products, a significant success. CNI, navigating the turbulence of customer connection and innovation, serving the essentials. Now on to the tools group. Sales were $323 million in the quarter, reflecting a $79.2 million organic decline and 3.3 million of unfavorable foreign currency. The operating earnings were 38.4 million, including 1.9 million of virus-related costs, 1.1 million of unfavorable foreign currency, and 600,000 of restructuring charges, compared to 71.3 million recorded in 2019. The tools group was a clear demonstration both of the COVID trajectory across our business and of the strength and resilience of our direct face-to-face model. As the virus rose in late March and April, the network was shocked, individually and collectively. The impact varied by region, but all geographies were affected. April was the deepest. However, moving from that point, our franchisees, in collaboration with the Snap-on team, found increasingly effective ways to accommodate the pandemic and pursue their support of the essential. In each subsequent month, The bands have shown significant gains. In fact, the tools group sales in June were down just 3.1%, up nicely after a tough start to the quarter. Beyond the ongoing accommodation, you hear from the field that the direct interface with our customers is dramatically highlighting the bond that Snap-on has always had with working men and women through thick and thin. And many franchisees report that the relationship forged anew, relationships forged anew in the pandemic have never been stronger. There's nothing like working together in difficulty. And we believe this bodes really well for our market position and for capturing future opportunities. So despite the virus, we're still quite positive about our business. And it's a view clearly reflected outside Snap-on. In fact, once again this year, we're being recognized in the top 50 of Entrepreneur's Magazine's annual best of the best franchises. The entrepreneur ranking rates 500 companies on cost, size, growth, franchise support, brand power, financial strength, and organizational stability. And we again scored highest in the tool distribution category. That's a distinction we've held for quite some time. As we move forward, our associates and franchisees are clearly becoming more effective against the wind. It's a continuing process born out of the Snap-on team working and developing action plans, sharing best practices for safe selling, supporting with tailored promotions, and launching targeted promotions. This is a process that's been successful in hurricanes, recessions, and the threats of 9-1-1, and it's working again. And of course, The effort includes also a healthy array of innovative new products to solve the critical. Everybody knows we have great ratchets. And guided by uninterrupted customer connection, we've been expanding that powerful lineup almost every quarter. And we did it again when we introduced the XFR704 12-point flank drive, double flex, ratcheting box wrench 10. Now, that's a mouthful. But this unit has a lot to offer. It combines 180-degree flexible head with our narrow width and low height design, allowing work in the tightest of spaces. Our patented ratcheting gear utilizes dual AD technology, minimizing swing arc and making jobs in restricted areas even easier. And our unique yoke and tang configuration provides the strongest and most durable flex head anywhere. The new four-piece set It's built in our Elizabethan, Tennessee plant right here in the USA. I was just there again. And I can testify. The snap-on people in that plant are a special team, turning out great product. And even in the current environment, the technicians have noticed, driving the Plex 2704 on its way to be another million-dollar product. Well, that's the tools group. Accommodating the pandemic. Furthering innovations. and strengthening for the future. Now let's speak of RS&I. The RS&I group finished the quarter with $245 million in sales, including $4.8 million of unfavorable foreign currency, $2.3 million from recent acquisitions, and that level compared to $348.9 million recorded last year. The lower volumes reflected declines of over 30%. in the activity associated with vehicle OEM projects, and in the capital-like spending relating to our undercar equipment operations, both areas that were deeply attenuated with the uncertainty. Sales of diagnostics and repair information products to independent shops were also negatively impacted, but to a lesser degree. Garages continue to subscribe and invest in meeting new repair challenges. Vehicles need fixing, even in a pandemic. Arsenal operating earnings of 50.6 million decreased 38 million, including 1.4 million of European-focused restructuring, 800,000 of unfavorable foreign currency, and 700,000 of direct COVID costs. So while the overall group was impacted, Information-based operations were not as effective, and new products were a driver in that. Once again, we generated repair excitement with innovations like the latest enhancements to our Mitchell One ProDemand repair information system, which in response to the needs of large national account customers now includes a range of vehicle lift points in its quick reference menu. The new ProDemand menu links directly to vivid vehicle illustrations which identify designated lifting points as well as listing all the important manufacturer-recommended safety procedures. You see, technicians in a hurry sometimes fail to follow the correct lift procedures. Injuries and vehicle damage can follow. But those who have our pro-demand system can now find the critical lift information only one click away from the home screen. It's a significant convenience and a clear safety enhancement. Also in the quarter, we launched our E-Technician 2.0, designed specifically for heavy-duty trucks. It's the most comprehensive and powerful diagnostic software in the market. It provides the data and the support required to stay competitive in today's trucking industries. Heavy-duty diagnostics were never this good. The E-Technician 2.0 combines extensive coverage from everything, from commercial vehicles to right down to light and medium heavy-duty trucks, diagnostic capability for an expanded array of of engines, transmissions, brakes, body and chassis systems, and more. The new 2.0 also adds, you know, an eCloud-based fleet-wide vehicle history, giving users access to every diagnostic session for every vehicle in their fleet, regardless of location. Snap-on continues to show the way in truck repair, and eTechnician 2.0 is another step along that path. You know, we're confident in the strength of our RS&I group. And we keep driving to expand its position with repair shop owners and managers, making work easier with great new products, even in the days of the virus. Well, that's the second quarter, the snap on second quarter. Shock moving to accommodation and to what we believe will be psychological recovery. Keeping our teams safe as we pursue the essential, applying the lessons of our experience, helping our customers, our franchisees, and our team, weather the difficult days and build the capability, weather those days and build the capability to operate in the virus environment, driving month-by-month improvement, engaging the power of our direct selling capabilities, being confident in our future opportunities now amplified by the virus, pursuing snap-on value creation, all to not only weather the turbulence but to emerge stronger and ready to take full advantage when the days are clear. Now I'll turn the call over to Algo for a detailed discussion of the financials.