Snap-On Incorporated

Good day, and welcome to the Snap-on Incorporated 2020 Third Quarter Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Sarah Verbsky, VP of Investor Relations. Please go ahead, ma'am.

Thank you, Emma, and good morning, everyone. Thank you for joining us today to review Snap-on's Third Quarter Results, which are detailed 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 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 investor 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 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.

Thanks, Sarah. Good morning, everybody. Today I'll start with the highlights of our third quarter. I'll give you a perspective on how the virus environment is playing out and on the trends we see today and going forward. And I'll speak on our physical and financial progress. And now, though, we'll provide a more detailed review of the financials. We see the third quarter as another encouraging period. The metrics clearly confirm Snap-on's resilience, showing the ability to continue its trajectory of positive results, moving from the initial shock of the virus and the associated interruption of activity to accommodation, developing safe and effective ways to support the essential nature of our business, and in some segments, starting to look towards psychological recovery where customers begin regaining confidence in the future and resume a full buying participation. The quarter's results back that all up, demonstrating significant elements of advancement. Sales and profitability improved sequentially across our operations despite the virus. The Snap-on team continued to make progress by increasing our ability to accommodate to the threat and pursue our essential commercial opportunities safely, moving along upward trajectories consistent with our general perspective on how the days of the virus are unfolding. Geographically, the impact of the COVID continues to be varied across our operating landscapes. Asia Pacific remains virus-challenged. Southeast Asia and India are still in deep turbulence. And at the same time, Europe saw some signs of recovery. For business segments, certain areas, education, oil and gas, aviation, experienced greater and more prolonged difficulties. You might expect that. In fact, the speed at which our customers are accommodating to the environment does vary by segment, but leading the way upward are our vehicle repair technicians, supporting the essential mobility of our society and our direct selling vans, our franchisees providing extraordinary face-to-face value. Both are taking full advantage of the opportunities and the numbers show it. And as we go forward, we see considerable additional opportunities as society pivots towards suburban locations and to more individual transportation. I'll tell you, it's music to the ears of the vehicle repair operation. We believe we do have abundant opportunities on the road ahead. And because of that, we're keeping our focus on snap-on value creation, safety, quality, customer connection, innovation, and rapid continuous improvement, or RCI. And in this area, that emphasis, this era, that emphasis is particularly important in Customer Connection Innovation. We're following that focus to create a continuing stream of great new products, positioning our operations to monetize the accommodation and the psychological recovery that outlines the path to the future. And in the third quarter, Snap-on Value Creation, Customer Connection Innovation drove growth in the face of the uncertainty and led to significant additions to our long line of product and innovation awards. Snap-on was prominently represented with three Motor Magazine Top Tool Awards, and we were further honored with five Professional Tool and Equipment News, or P10, Innovation Awards. But most significant of all, we were also recognized with 18 P10 People's Choice Awards, where the technicians, the actual users, make the selections. Eighteen is a big number. It ties our record that was set just a few years ago. You see, an essential driver of our growth, with or without the pandemic, is innovative product that makes work easier. It's always been our strength and the awards. Hard won. Our testimony that exceptional Snap-on products just keep coming, matching the growing complexity of the tasks and maintaining our forward progress, even in turbulence. Well, that's the overview. Now for the results. Third quarter, as reported, sales. of $941.6 million, we're up $39.8 million or 4.4% from 2019, including a $34.6 million or a 3.8% organic increase, $4.2 million of favorable foreign currency translation, and $1 million of acquisition-related sales. From an earnings perspective, for the quarter of 185.7 million, including 1.5 million in direct costs associated with the virus, and a $4.5 million hit from unfavorable currency compared to 167.7 million last year. The operating margin, it was 19.7%, up 110 basis points. For financial services, operating income of 65.6 million increased from 2019, 61 million, all while the 68 delinquencies improved year over year. And that result combined with OPCO for a consolidated operating margin of 24.5%, 130 basis point improvements. The overall EPS was $3.28, and that compared to $2.96 last year, an increase of 10.8% in a somewhat challenged environment. Those are the overall numbers. Now the groups. In C&I, volume in the third quarter of $308.4 million, including $2.2 million of favorable foreign currency, was down 8% as reported, 8.6% organically, reflecting decreases in sales to our customers in critical industries, I named a few, and in Asia Pacific. Now, our European-based hand tool business was essentially flat to last year, a positive result given the twin headwinds of COVID-19 and the economic turbulence that now inhabits that region. From an earnings perspective, C&I operating income of 43.1 million decreased 5.2 million, including 1.4 million of unfavorable foreign currency effects and eight-tenths of COVID-related expenses. Now, C&I sales were down 8.6%. OI was down 10.8%, a reasonable ratio. highlighting that RCI and cost containment went a long way in offsetting the impact of lower volume at CNI. In addition, the group did show significant sequential progress. The decline in sales and OI both narrowed considerably compared to the second quarter, reaffirming the positive upward trend that started after April. Regarding critical industries, military and And international aviation again continued to register growth while activity and education, oil and gas, and U.S. aviation were particularly impacted. You might expect that given the state of those particular industries. But we do remain confident in and committed to extending in the critical industries. And we see growing opportunities moving forward. And the principal path to that possibility is customer connection and innovation combining to create growth. Powerful new products. Our European hand tools business showed resilience in the quarter, yes, and it was aided by a good dose of innovation. Products like our all-new line of Baca Urgo insulated cutting and holding pliers. We redefined the steel mill and refined our heat treat process, developing a new metallurgy that strikes the perfect balance between strength and reliability. With those special material advantages, the edges were redesigned and improved. Progressive blades that cut both soft cables at the tip and hard wires close to the joint. Tremendous versatility. The new pliers have longer jaws and are aligned with more precision, better access, and more accurate work. The installation meets the IEC 60900 international standard for working with live systems up to 1500 volts DC. Substantial protection, safety in vehicle repair, or in an industrial environment. Strength, reliability, flexibility, accessibility, and safety, the ErgoPlier is a powerful addition to the Baco lineup of insulated tools now numbering 250 strong, all focused on electrical work. The new pliers were launched just this quarter and I'll tell you, the reception was quite enthusiastic. We also continue to introduce attractive new entries in our lineup of 14.4 volt the compact cordless power tools. This quarter, two strong additions, effective in the repair shop or around the production line. The new CGRS861 or the CGRR861, incline and right angle grinders, high torque, longer run time, extended motor life, all in a compact, lightweight, and easy to move your body. The new units both feature a dual collar system accommodating both eighth-inch and quarter-inch bits, allowing for a wide range of accessories and a feature that, when combined with our built-in spindle lock, makes for very quick changeover. That's a popular time saver. The new tools also include variable speed control, a key to handling a wide variety of servicing jobs. We launched in August. The technicians clearly have noticed, and the grinders are already two of our million-dollar hit products. CNIs. Demonstrating, encouraging sequential progress, serving the essential. Each of the businesses generating ongoing improvement and exiting the quarter stronger than when they entered. And product investment authored a big piece of that progress. Now on to the tools group. As reported, sales up 16.8%. to $449.8 million, including $1.8 million of favorable foreign currency, and a $62.8 million, or a 16.2% organic increase. Same store sales, with the U.S. and international businesses all growing at double digits. The operating earnings, $87.1 million, including $0.4 million of virus-related costs, and $2.9 million of unfavorable foreign currencies. That compared to $53 million last year. The tools group operating success was a clear confirmation on our view of the COVID-19 trajectory, on the resilience of the vehicle repair business, and on the strength of our direct face-to-face van model. As we entered the quarter, we saw our franchisees seeking increasingly effective ways to accommodate the pandemic. pursuing the support of the essential. And we've helped in that effort with time-saving aids, including further automation in the customer collection process, remote diagnostic software renewals, and multi-franchisee data bundling. New technology aids aimed at making it easier to operate in a virus environment and saving scarce franchisee time under any conditions. Also, as I'm sure... Many of you are aware the third quarter is when we hold our annual Snap-on Franchisee Conference, the SFC. No surprise. This year was different than any held before. The in-person gathering was canceled, and our 100th anniversary celebration plan for that meeting was postponed to 2021. Instead of the usual event, we came together over the weekend, ordinarily reserved for the SFC, at a virtual conference live from the forge. More than 3,800 van drivers participated at a distance. representing nearly 98% of the North American network. Following what was, I think, a rousing Friday night kickoff, we had presentations on significant offerings, training on unique product advantages, and seminars on effective selling techniques. After that Friday show, 180 individual videos featuring products and programs and training were posted on demand. And through the course of the weekend, franchisees racked up over 43,000 views of the content. The Live from the Forge action was concluded on Sunday afternoon, and I'll tell you, it was a clear success. Continuing the SFC tradition, highlighting new product, strengthening our franchisee capabilities with great training, and reinforcing our brand with a positive message and a lot of fun. It was abundantly evident at Live from the Forge that new product is a big driver for franchisee excitement. We do have considerable confidence in the power of our product line, and there are real reasons for that belief. You heard about the product awards. Well, beyond that, as our franchisees saw, there's a continuing stream of other great new offerings, candidates for next year's recognition, attention-getters that make repair work easier and really help the technicians meet the challenges of increasing vehicle complexity as the model years roll by. Just one example unveiled at the conference was our new steel Titan roll cab. with a new color combination, eye-catching dark titanium paint brushed in blue trim, special details in bright blue, the snap-on nameplate, the S-Wrench logo located on the cab face, and a special S-Wrench imprint on each interior liner. The Titan is visually striking, I can tell you, but it's also work-enabling. Three extra-wide drawers for easy access to most commonly used tools, a speed drawer, improved organization for a variety of small items like drill bits, and a power drawer. for power tool charging using a Snap-on exclusive power strip design with five offset AC outlets and two USB ports. Vehicle repair is moving towards psychological recovery, gaining confidence, starting to invest in longer payback items. And the Steel Titan is just the ticket. It's product excitement, even in the pandemic, and it was a success. The customers loved it. Also introduced in this quarter was the new eight-piece power steering and alternator pulley master set, a hands-on, helping technicians to more easily remove and install pressed-on pulleys in most GM, Ford, and Chrysler engines. The unique reversible dual-yoke design that this hand tool has includes multiple adapters, allowing for quick model changeovers and increased productivity. Pretty important in a garage. The master set is a necessity for smooth installation and removal of power steering pump, alternator, and vacuum pump pulleys in a large range of vehicles. It's manufactured in our Elkmont, Alabama plant right here in the USA. I was just there last week, and I could tell you it's a great team. It's no wonder the initial response to the master set was very positive. It made our list of hit million-dollar products in just the first month. Well, that's the tools group. Accommodating the pandemic, taking advantage of the psychological recovery, furthering innovation, and strengthening for the future. Now let's speak of RS&I. The RS&I group also posted significant sequential improvement from the second quarter, narrowing the shortfall to 1.6%. You may recall that in the second quarter, the sales were down 29.8%. That's a big move. Volume in this period in the third quarter was $317.5 million, including $800,000 of favorable foreign currency and $1 million from recent acquisitions. The slightly lower activity reflected continued growth in the sales of diagnostics and repair information products to independent repair shops, and flat capital spending on undercar equipment, all balanced by improved but still decreased activity in vehicle OEM projects. RCIA operating earnings of $80.1 million decreased $3.2 million, reflecting the lower volume. OI margin was 25.2%, down 60 basis points, including a 10-point hit from currency. So while the overall group was somewhat impacted, Diagnostics and information-based operations continue to grow, and once again, new products led the way. Among the new offerings launched in the quarter was our latest intelligent diagnostic unit, the Apollo D9, ergonomically designed. It's a new handheld, and it features ultra-fast two-second startup time, a larger nine-inch touchscreen, and a number of preloaded training videos installed directly on the tool for instant use. The platform's powered by our intelligent diagnostic software. Over 1 billion repair records and over 100 billion unique diagnostic events, all organized to help technicians fix cars much faster. Now, we've been talking about shortening the selling cycle for our complex diagnostics and increasing the sales capacity of our franchisees. Well, Live from the Forge features a detailed seminar on operating and selling the new Apollo, And to make that distance training extra powerful, each franchisee was provided with a new demo unit to follow right along live, hands-on with the program. In addition to the special training, the unit could also be used immediately the next week to demonstrate the new Apollo's compelling advantages right in the field. Seems to be working. Although it was introduced at the end of the quarter, our on-the-street feedback says our new handheld will go a long way to advance our our strategic trust into intelligent diagnostics. We're confident in the strength of RS&I, 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 our third quarter. Absorbing the shock, following the accommodation, moving on to psychological recovery. keeping our people safe while we serve the essential, continuing to improve sequentially on a positive trend, a successful SSE at a distance, confirming the power of our direct selling van model. Results above last year. Sales up 4.4%. OI margin 19.7%. 110 basis points higher. Financial services navigating the virus era with strength and an EPS of $3.28. All achieved while maintaining and investing in our strengths of product, brands, and people. It was an encouraging quarter. Now I'll turn the call over to Aldo. Aldo?

Thanks, Nick. Our consolidated operating results are summarized on slide six. Net sales of $941.6 million in the quarter compared to $901.8 million last year, reflecting a 3.8% organic sales gain. $4.2 million of favorable foreign currency translation, and $1 million of acquisition-related sales. The organic increase reflected sequential improvements in year-over-year performance in all three operating segments, led by the tools group segment, with a double-digit sales gain in the third quarter as compared to last year. While sales in the commercial, industrial, and repair systems and information segments were lower than the third quarter of 2019, they did increase significantly from 2020 second quarter levels. During the quarter, The COVID-19 pandemic remained ahead within certain geographies and within certain industries. But overall, the momentum experienced in the month of June continued into the full third quarter for all of our businesses. Similar to last year, we identified – last quarter, we identified $1.5 million of direct costs associated with COVID-19. These costs include direct labor, underabsorption associated with temporary factory closures, wages for quarantined associates, event cancellation fees, as well as other costs to accommodate the current enhanced health and safety environment. Consolidated gross margin of 49.9% compared to 49.7% last year. The 20 basis point improvement primarily reflects the higher sales volumes and benefits from RCI initiatives, partially offset by 50 basis points of unfavorable foreign currency effects. The operating expense margin of 30.2% improved 90 basis points from 31.1% last year, largely reflecting the impact of higher sales and savings from cost containment actions and accommodating the impact that COVID-19 has had on the overall business environment. Operating earnings before financial services of $185.7 million, including $1.5 million of direct costs associated with COVID-19, and $4.5 million of unfavorable foreign currency effects compared to $167.7 million in 2019, reflecting a 10.7% year-over-year improvement. As a percentage of net sales, operating market before financial services of 19.7%, including 20 basis points of direct costs related to the COVID-19 pandemic and 60 basis points of unfavorable foreign currency effects, improved 110 basis points from 18.6% last year. Financial services revenue of $85.8 million in the third quarter of 2020 compared to $84.1 million last year, while operating earnings of $65.6 million compared to $61 million in 2019, principally reflecting growth in the financial services portfolio, as well as lower provisions for credit losses. Consolidated operating earnings of $251.3 million, including $1.5 million of direct COVID-related costs and $4.3 million of unfavorable foreign currency effects, compared to $228.7 million last year. As a percentage of revenues, the operating earnings margin of 24.5% compared to 23.2% in 2019. Our third quarter effective income tax rate of 23.4% compared to 23.5% last year. Finally, net earnings of $179.7 million, or $3.28 per diluted share, increased $15.1 million, or 32 cents per share from 2019 levels, representing a 10.8% increase in diluted earnings per share. Now let's turn to our segment results. Starting with the C&I group on slide seven. Sales of $308.4 million compared to $335.3 million last year, reflecting an 8.6% organic sales decline and $2.2 million of favorable foreign currency translation. The organic decrease primarily reflects a low-team decline in both sales to customers and critical industries and in our Asia-Pacific operations, while sales in the segment's European-based hand-pulls business were essentially flat. Across the critical industries, gains in international aviation and in sales to the U.S. military were more than offset by declines in natural resources, including oil and gas, as well as continued lower technical education sales. Within Asia, sales to customers in India and Southeast Asia continue to lag behind some recovery experienced in other areas of the region. Gross margin of 37.3% declined 60 basis points year-over-year, mostly due to the impact of lower volume and 50 basis points of unfavorable foreign currency effects. These decreases were partially offset by material cost savings and benefits from the company's RCI initiatives. The operating expense margin of 23.3% improved 20 basis points as compared to last year. Operating earnings for the CNI segment of $43.1 million including 1.4 million of unfavorable foreign currency effects compared to $48.3 million last year. The operating margin of 14% compared to 14.4% a year ago. Turning now to slide eight, sales in the Snap-on Tools Group of $449.8 million compared to $385.2 million in 2019, reflecting a 16.2% organic sales gain and a $1.8 million of favorable foreign currency translation. The organic sales increase reflects a mid-teen gain in our U.S. franchise operations and approximately a 20% increase in the segment's international operations. The gross margin of 45.5% in the quarter improved 210 basis points, primarily due to the higher sales volumes and benefits from RCI initiatives, partially offset by 70 basis points of unfavorable foreign currency effects. The operating expense margin of 26.1% improved from 29.6% last year, primarily due to the impact of higher sales volumes and savings from cost containment actions, including lower travel and meeting-related expenses. Operating earnings for the Snap-on Tools Group of $87.1 million, including $2.9 million of unfavorable foreign currency effects, compared to $53 million last year. The operating margin of 19.4% compared to 13.8% a year ago. Turning to the RS&I Group, shown on slide nine, sales of $317.5 million compared to $322.7 million a year ago, reflecting a 2.2% organic sales decline, as well as $800,000 of favorable foreign currency translation, and $1 million of acquisition-related sales. The organic decrease includes a high single-digit decline in sales to OEM dealerships, partially offset by a low single-digit increase in sales of diagnostic and repair information products to independent repair shop owners and managers. Ghost's margin of 47.3%, including 10 basis points of unfavorable foreign currency effects, declined 40 basis points from last year. The operating expense margin of 22.1% increased 20 basis points from 21.9% last year. Operating earnings for the RSI group of $80.1 million compared to $83.3 million last year. The operating margin of 25.2% compared to 25.8% a year ago, including the effects of 20 basis points of unfavorable currency and 10 basis points of direct costs associated with COVID-19. Now, turning to slide 10. Revenue from financial services of $85.8 million compared to $84.1 million last year. Financial services operating earnings of $65.6 million compared to $61 million in 2019. Financial services expenses of $20.2 million decreased $2.9 million from last year's levels, primarily due to lower provisions for credit losses reflecting a year-over-year decline in net charge-offs. As a percentage of the average portfolio, Financial service expenses were nine-tenths of 1% and 1.1% in the third quarters of 2020 and 2019, respectively. In the third quarter, the average yield on finance receivables of 17.8% in 2020 compared to 17.7% in 2019. The respective average yield on contract receivables was 8.4% and 9.2%. The lower yield on contract receivables in 2020 includes the impact of lower interest business operations support loans for our franchisees. These loans were offered during the second quarter to help accommodate franchisee operations in dealing with the COVID-19 environment. As of the end of the third quarter, approximately $16 million of these business operating support loans remain outstanding. Total loan originations of $252.8 million in the third quarter of 2020 compared to $253.5 million last year. Originations of both finance receivables and contract receivables were essentially flat to last year's levels. Moving to slide 11, our quarter end balance sheet includes approximately $2.2 billion of gross financing receivables, including $1.9 billion from our U.S. operations. our worldwide gross financial services portfolio increased $25 million in the third quarter. Collections of finance receivables in the quarter of $185.2 million compared to collections of $181.6 million during the third quarter of 2019. As we mentioned last quarter, as a result of the COVID-19 pandemic, we did provide short-term payment relief or forbearance to some of our franchisees qualifying customers. As of the end of September, those accounts having forbearance terms were back to more typical levels and were below 1% of the finance receivable portfolio as compared to about 2.5% as of the end of the second quarter. Trailing 12-month net losses on extended credit or finance receivables of $46.7 million represented 2.7% of outstandings at quarter end, down 23 basis points sequentially. The 60-day plus delinquency rate of 1.5% for U.S. extended credit compared to 1.7% last year. On a sequential basis, the rate is up 50 basis points, mostly reflecting the typical seasonal increase of 20 to 30 basis points we experience between the second and third quarters, as well as the 20 to 30 basis point benefit to the rate reflected in the second quarter of 2020 that was associated with the deferred payment programs that were offered through June. Now, turning to slide 12. Cash provided by operating activities of $224 million in the quarter increased $92.9 million from comparable 2019 levels, primarily reflecting the higher net earnings and net changes in operating assets and liabilities, including a $57 million decrease in working capital, largely driven by lower year-over-year changes in inventories. Net cash used by investing activities of $18.8 million included net additions to finance receivables of $11.7 million and capital expenditures of $10.1 million. Net cash used by financing activities of $105.1 million included cash dividends of $58.8 million and the repurchase of 300,000 shares of common stock for $45.1 million under our existing share repurchase programs. As of the end of September, we had remaining availability to repurchase up to an additional $294.5 million of common stock under existing authorizations. Turning to slide 13, trade and other accounts receivable decreased $75.7 million from 2019 year end. Days sales outstanding of 64 days compared to 67 days of 2019 year end. Inventories increased $4 million from 2019 year end. On a trailing 12 month basis, Inventory turns of 2.4, although slightly improved as compared to 2.3 times at the end of the second quarter, compared to 2.6 at year-end 2019. Our quarter-end cash position of $787.5 million, compared to $184.5 million at year-end 2019. Our net debt-to-capital ratio of 15.5%, compared to 22.1% at year-end 2019. In addition to cash and expected cash flow from operations, we have more than $800 million in available credit facilities. As of quarter end, there were no amounts outstanding under the credit facility, and there were no commercial paper borrowings outstanding. That concludes my remarks on our third quarter performance. I'll now turn the call back to Nick for his closing thoughts. Nick? Thanks, Aldo.

We are encouraged by the quarter. Our operations, all of the groups, CNI, RSNI, and tools improving sequentially. Shock to accommodations of psychological recovery, tracing a clear and continuing upward trend. A significant rise in the tools group, up 16.2% organically, same store sales, confirming the opportunities in vehicle repair and showing the power of our van network. National services performing well in the turbulence. demonstrating clearly the robust nature of its processes and its portfolio. And the positive overall results, sales up 4.4%, 3.8% organically. OI margin, 19.7%, strong, representing a rise of 110 basis points. EPS, $3.28, up 10.8% from last year. Significant gains against the turbulence. All achieved. while consciously continuing to fortify our strength and advantage in product, a range of new offerings, in brand, a successful SSC, despite the distance, and in people. We're keeping our team intact. You see, we are confident in our belief that we have ongoing upward momentum in the near term, and we recognize that we've expanded opportunity in changing technologies and with the greater use of personal vehicles in the long term. and we're maintaining our advantages through the virus so that Snap-on will be at full strength, taking advantage of these abundant opportunities, driving continuous progress through this period of challenge and well beyond. Now I'll speak directly to our franchisees and associates. I know many of you are listening. This was an encouraging quarter, and we do have a bright future. I know none of it would be possible without your energy, your capability, and your dedication. For your essential effort in supporting our society, you have my admiration. For your extraordinary achievement in driving us forward, you have my congratulations. For your continuing commitment to our team, you have my thanks. Now I'll turn the call over to the operator.

Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star 1 to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions. We'll take our first question from Christopher Glenn with Oppenheimer.

Good morning, and congratulations on a strong quarter. I'm curious at the tools group how to contextualize the growth, which really had no foreshadow or precedent the last few years, other than maybe is it wiser to look at 2Q, 3Q combined year-over-year growth, or in terms of how would you...

Look, I think the thing is, I think we said when we went into the first quarter, in the first quarter we said we got hammered in March, but things were looking pretty good before that. So I think we had made investments in product and processes that were helping us mine the franchisee's capability more effectively, and we started to see that toward the end of the fourth quarter last year in the first quarter. And then, you know, Katie barred the door on the virus, and so things go down. But we started to see people recover. That's why we say shock accommodation. They started to accommodate. And we said June was coming back, tracing an upward trend. So when you look at the third quarter, I think you think of it in, okay, there is, you know, some makeup. You know, I assume when things have gone down so badly, particularly in April, there's some catch up there. But here's the thing that makes sense to us. When you look at the sales off the bands, The sales off the van have been strong for a long time. They were better in the second quarter than our sales. And in the third quarter, they were every bit as strong, deep into, you know, well into double digits every month. And then when you look back at it after the third quarter, the sales off the van are up year over year, you know, by a clear amount. And so they're by a clear amount. So I think that's the data point. It says to me, we're going back to kind of like that upward trend. Now what happens going forward? Hard to say. I guess that's the $64,000 question. But I like what I see in this kind of situation. Sort of, tools group seems to be hitting on all cylinders. Now the wild card could be Europe. And in the quarter, one of the cool things about the quarter was the UK had turned around. quite well. I don't know if you caught the international operations up double digits, and that hadn't been a situation. There's a lot of ups and downs there, and that could be an uncertainty going forward over those geographies and so on, but I'll tell you what, there's a lot of momentum. We see a lot of good reasons for this in the franchisees becoming more effective, in the way we knew how to get over this because this wasn't our first rodeo. associated with the downward trends, and we knew how to get our franchisees through it. We got them through it, and it paid off. I think you look at it, okay, 16.2% organically is a big number, but we really mined the profits. If you think about off the van, it shows that there's an appetite out there, and vehicle repair is back. It's approaching what we call in our construct psychological recovery. And the vans are taking advantage of it. What we like about this is regardless of the arithmetic, it shows the resiliency of vehicle repair in turbulence and the positivity and the strength of the face-to-face van model when we enable it with these technologies we've been helping them with.

Thanks. And just to follow up, I was curious what degree you guys contemplate an upshift in the payout ratio given that organic reinvestment and bolt-ons and share repurchase are, you know, very much covered and your kind of pay-as-you-go rates there. I think, you know, some field is a strong case for a 50% to 60% payout ratio. Curious your thoughts around that.

Well, Chris, you probably know that we have in recent history usually revisit the dividend rate in the fourth quarter that's coming up upon us. And like every meeting we have with the board of directors, we'll have that discussion and we'll try to take a step forward in what we think is affordable, realizing that Snap-on's approach is to treat the dividend increase kind of like a perpetuity. Again, that's been our historic pattern. I'll kind of leave it at that.

Yeah, I mean, our governing policy of dividends is perpetuity. We think it's a cornerstone and a hallmark of the resilience and power of our model. So we believe in that strongly. Thanks, guys.

We'll take our next question from Luke Uke with Baird.

Hey, everyone. Thanks for taking the question. So two questions on the tools group. First, wondering if you could comment on growth rates from a product line standpoint. Seems like diagnostic sales are likely moderately based on your RS&I commentary, and tool storage, I guess if we just look at origination, feels fairly stable. Should we read that hand tool sales were the big driver of the strength, or is there something else we should be taking into account?

You know, sort of yes with qualifications to those questions, I guess. I don't know. Look, first of all, I'll just say this as a disclaimer up front. Looking at the quarterly byproduct numbers doesn't really tell you that much because it's heavily dependent on what's introduced, what are the products and programs that break with the franchisees and then on to the technicians in the quarter. that really heavily influences it. So one quarter can't give you any real information on this, but it's better than a poking an eye with a sharp stick when you look at these things sometimes. So look, here's the thing. Big ticket items were up in the quarter. Our sales to the franchisees were up in the quarter. They were up okay. Tool storage had a nice quarter, actually. But there is a timing difference between between originations and sales, our sales to the vans. Remember, what you're seeing from us is we sell to the vans, and then they got a point. First of all, okay, they got to get there. You know, they get there, and then the guys get them up, and they find a buyer, and then they get credit and so on. So there can be some sort of disconnection between the timing. But generally, I'd say that's right. They were up in the quarter. Hand tools were very strong in the quarter, very strong, and they led the way. But power tools were nicely up, too. So, I mean, there were a number of different products that were up. The hand tools, of course, a lot depends on what you feature and what the new products are, which is why I talked about the master set, because hand tools was a star in the quarter, but it wasn't to the exclusion of, say, like tool storage and the others. Okay, that's... One of the things I think you would One of the things I think you would conclude out of this, I think, is that when you see originations, in effect, what are they down, 0.3% or something like that? Or maybe a little bit bigger in the U.S., you know? And you see me say that tool storage is up to the franchisees and the big ticket is up to the franchisees. You would say that it's not the amount of the product. It's that the fact of being flat even flat or up a little bit year over year, means that they're going to psychological recovery. In other words, the garages and the technicians and the franchisees themselves are starting to believe in the future and have confidence to invest in longer payback items. This is kind of a watershed event in terms of the state of mind throughout the industry, one of the snapbacks. And if you think about it, Boy, if you just step back and you look at the news about the auto industry in general, but also you kind of look around, vehicle repair is pretty robust. Actually, wages were up for technicians in August, according to the rolling toll were up. I think that's a positive. When I go out, when I went to the factory in Elkmont, Alabama, I also went to franchisees. I just talked to several franchisees across the country. And they're all talking about robust garages. When I went to a garage recently out around here, you couldn't get in the parking lot. There were too many cars. So I think this is going pretty well.

Okay, and then second question, just a clarification. Wondering what the status is of the deferred payment sales plan programs that you told us about back in April. Was there any impact from those plans in the quarter from a sales standpoint in the tools group and then From a credit standpoint, although you mentioned the sort of 20 to 30 basis point influence sequentially in the U.S. extended credit delinquency rate, should we assume that that fully washes out in the third quarter effectively versus the noise, if you want to call it, in Q3?

In Q3, there was no sales benefit derived for the deferred programs because there were no deferred programs argued. Now, I say that Our elite franchisees, people that we stripe in the Platinum program called Elite, always have the privilege of being able to offer 60-day deferred programs as a normal course of business. So I would call that just normal activity. So there was nothing unique in Q3 that benefited the sales line. When it comes to impact on delinquency rates and collections and charge-offs, We factor all of that in based on our history, which is considerable, because again, while we don't have in-depth COVID-19 experience, this is our first experience at that, we do have a lot of experience with catastrophic events, which are usually more local, and we do provide in our provisioning for what would be the anticipated losses when you have people that take advantage of deferred programs versus not deferred programs. So having said all that, I guess I don't want to use the word it washes out, but it's already kind of reflected in our results. And going forward, whether we offer more deferred programs will remain to be seen. We look at the opportunities and if they're created, we'll think about it and see if it creates a reason to buy now.

You know what's interesting from our perspective is if it weren't for the COVID, everybody wouldn't be on the edge of their seat with this. I recognize that everybody wants to see if there's going to be problems with the credit company and collections and delinquencies and so on because of the COVID. But in reality... The deferral is just an everyday thing for us. We do it from time to time. It happens on a regular, not regular, not periodic basis, but it happens quite often. We just mix it up, so we give customers a reason to buy now and a franchisee a reason to change up a sales pitch. That's something to talk about to those customers.

Good. Appreciate the color on both those questions, and I'll leave it there. Thanks, guys.

We'll take our next question from Brett Jordan with Jefferies.

Hey, good morning, guys. Hi, Jordan. How are you doing? Good. Hey, when you think about the impact of, I guess, you know, the mix, it sounded like the hand tools were very strong. Do you think stimulus played a role? I mean, obviously, the garages are seeing business as people are putting their personal cars, you know, back on the road, you know, heavy use.

Hey, look, I think, I don't know. Look, I think my guess is, first of all, Our guys are employed mostly. You can look at the thing. Things dipped. I think the number of hours went down 5% or something like that in April, and then it snapped right back. Generally, what we see and what I'm hearing from my franchisees, and I talk to a lot of them, the garages are pretty much employed. So I don't think unemployment is a big deal. You know what I mean? The unemployment deal or the PPI. You could have argued that whatever people got in the beginning, you know, like $1,200 or something, you know, that might have helped. You know, I'm reading that people put that in the bank. I don't know. But I think it would have been over in the second quarter. We kind of thought that might have helped us in the second quarter. That was one of the questions for us, you know, when we saw the tools group go up. and hit the 3% or I guess it was 2.4% in the United States and that kind of thing. We thought maybe that might have been helping. But my sense of it is it was probably either banked or spent. I don't think it was driving the third quarter. I don't think. I don't think our guys are sitting on the edge of their seat waiting for Congress to approve another one.

So the mix of cash versus credit buyer, I mean, it sort of seems like you had a very strong tools number but not as much growth on the credit book. So was there a real shift here to cash purchase in the third quarter?

Well, there was a shift toward smaller – not shift, but in the quarter we had nice hand tools, and they tend to be RA, not long-term credit. Remember, when you say credit, when you're talking credit – everything sold off the bands on credit. Everything, right? And so, okay, you're only talking about whether it's 12 to 15 week credit or, you know, three year or four year credit, really. So everything's sold on credit. So I don't think if you say, if you put that in a positive sense, everything was sold. So I don't see people, you know, paying cash so much. I haven't heard people paying cash. And our RA book is up some, you know, because hand tools are strong. Anytime hand tools are strong, you see that happen. and the longer-term credit tends to be a little bit less. But actually, we thought longer-term credit, given the environment, was pretty robust in the quarter. As I said, I think it's a sign of things getting better in the general milieu of the repair shop. Now, if somehow a miracle happens and the people in Washington get together and they decide to send everybody $1,200, I think that might be cherry on the top. I don't know. I don't think we got much in the third quarter, though. I really don't.

Did you talk about the cadence of the third quarter? I mean, obviously the timing, you didn't have the franchise event, so maybe people were spending more money early? Yeah, right.

I mean, the cadence in the third quarter isn't as clear as the second quarter because we're coming off some, you know, April has got awful, huh? The thing is, you're coming off of that and you roll up. Generally, if you want to talk to the tools group, if you look at the sales off the van, which is not really subject to much SFC impact, each month was into the double-digit range, clearly. I think the cadence was pretty solid off the van. You get up and down depending on where the SFC is, I think, here. Sometimes, for example, when you have a live SFC, people tend to keep their powder dry because they want to get there and spend. It's almost like a Disney World. It's almost like a fun experience when they get there. They run around and they buy all this stuff and so on. This was a little more measured because it was at a distance, so not quite as exciting. They spent a little earlier than they would have, I think. That's a fair view. If you look at the stuff off the van, it seemed to be solid.

Thank you.

We'll take our next question from Curtis Nagel with Bank of America.

Good morning. Thanks very much. How are you doing? Nick, how are you guys doing?

We're doing okay.

Terrific. Glad to hear. Maybe just a first one on inventory. It looks like there was a nice work down. Could you talk to a little bit about which segments you saw, I guess, the largest declines or, I guess, the biggest movement year-over-year?

I think we didn't see much of a downtick in the tools group inventory, but you have to look at it through the lens of seasonality. Tools group inventory always rises in the third quarter in anticipation of the sales, in anticipation of having to make good the order burst that comes out of an SFC. Fundamentally, inventory flat in the quarter meant that the tools groups seasonally looked pretty good, really, compared to what you might expect if it had been a normal year. The other groups, I think, came down. I think our overall inventory was down a reasonable amount. I think it was, as you might expect in this kind of era.

Yeah, if you look at inventory, in terms of dollars, Kurt, it was down about $28, $29 million. As Nick mentioned, tools grew relatively flat in terms of their inventory move, and the other was shared kind of equally between the commercial industrial group. RS and I both had contributions to lower inventory, which you'd expect, because their sales were not as robust as last year.

But what I wanted to emphasize in the call, though, hey, One of the things that, I'll tell you what, both were sequentially improved. I mean, CNI was down, what, 20%, 19.7%, I think, or it's about 20% in the quarter, second quarter, 8.6%. That's a nice improvement. And then the one that really came from behind was RS&I. We thought, I think, I'll share with you, we thought RS&I, The garages themselves, based on the atmosphere in the OEMs, would have been harder to come back, would take longer to come back. But they moved from, they were down, like I said, 29.8% last quarter. They knocked it through, I think, 2.2% organically and one down, or 1.6% as reported. So a pretty big move. So I think what you're seeing in those businesses is Even though they don't have the starry numbers that the tools group has because their industries are still going through accommodation and aren't even approaching psychological recovery, they're showing some pretty good movement.

Understood. Great. And then maybe just a quick clarification in terms of, I guess, a sequential trend in sell out on the vans in the tools group in 2Q to 3Q. Did it improve, or how did that trend? I just didn't quite catch that.

Yeah, it improved.

Sure, it improved. It improved, but it was, I would say this. It was, in Q2, it was running ahead of the sales to the van, I think. You know, sales, it was kind of a, if you want to think of it this way, Kurt, you can think of it this way, and I would think that Q2 meant inventory was being pushed out a little bit. The inventories were going down because the sales off the van were a little bit more robust. Not great, but they were more robust. And they started to spike up in June, which is why we started to talk about the tools group in June. We could see that. In fact, we said that on a call. And then in the third quarter, more or less equal. The sales to the van were about equal to the, for government work, were about equal to the sales off the van. That's how it happened. So I think just the sales to the van kind of caught up. It doesn't look like they're building inventory, though, in the third quarter. It just looks like they kind of stayed stable.

Okay. Very good. Thanks very much, and good luck with the rest of the quarter. Thanks.

Thanks. We'll take our next question from Gary Prospettino with Barrington Research.

Hey, good morning, everyone.

Good morning, Gary. Good morning.

Most of my questions have been answered, but just one in terms of you had a little bit of a tailwind from FX on the sales side. What kind of impact did that have on the adjusted EPS for the quarter, Aldo?

Well, we actually had negative six cents of EPS driven by currency, because while the sales line benefited, there was currency transaction losses principally driven by sales of U.S. manufactured product in Canada and the United Kingdom, but also the commercial industrial group. It has to do with flows between Euro-based customers versus Swedish-based sources of supply. That's what drove the Uzi transaction.

What happens, Gary, is that the transaction, whereas translations tend to be current, transaction, you look back because you set the cost of the product when it gets shipped, and it doesn't get sold until sometimes later. And that's what drives that difference. So, in effect, transaction kind of trails the situation. You'd expect less negative impact, certainly, in Q4. Right.

You get bigger sales, good news, and lower profit, bad news. So, okay, great. And then just, you know, early on in the quarter here, particularly we're hearing a resurgence of this COVID, and I think You know, the U.K. has put in some more stringent lockdowns. Could you maybe talk about, you know, what you're seeing early stage in Q4 with various regions of the world?

Well, we don't really give guidance, but, look, I can tell you my broad view is that, boy, you know, if you look at the United States, I don't know. I think vehicle repair particularly won't get shocked again. In fact, everywhere won't get shocked again. Whatever happens, I think our people will accommodate better than they did in the April and March area. So I think that's just kind of a broader view. Look, I think the United States kind of continues to march. Nobody knows what's going to happen exactly, but I think the accommodation continues in the United States in all our areas. Europe's got twin problems with economics and so on. So it's hard to see across all those geographies what's going to happen there. Again, though, I don't think they get shocked again. So I think they manage it, but it could be slowed down or it could be accelerated. Asia Pacific, I think China, of course, is okay. Japan should be okay. I don't know what the heck's happening in India and Southeast Asia, but they seem to be completely flat on their back in terms of their ability to deal with this situation. So we'll see how those That's how I see it playing out. And I think, you know, we see upward trend, like we said last time. I believe in the shock accommodation psychological model, but the value of that slope upward will change depending on how conditions occur. I do think, though, we're fortified against the really bad news. And really, I'm not telling you anything. We could have just as good a quarter or a better quarter next time.

Okay. Thanks. Appreciate it.

We'll take our next question from Scott Stimber with CL King.

Good morning, guys. Scott, how are you doing? Good. Most of my questions have been answered also, but just going back to the UK and the tools group, I know that obviously things have been tough there for the past year, year and a half, and got worse in the second quarter. But that was a pretty eye-popping improvement that we saw in tools in the UK. Could you just talk, was there anything else going on there? Were there new products introduced? And just trying to get a sense of the sustainability of the recovery.

There's a couple of things. Look, I think we believe the UK came a long way. And in fact, their acceleration upward had already begun in June. It just wasn't the level of the U.S. But if you go back, they were deeper in April. And if you looked at the slope of the curve upwards in June, you'd say, wait, something's going on there. And I think part of it was is that, okay, you had people suffering through the shock, and they were really shocked. And you had the economics on top of it. And my own personal opinion were three things. One is they started to accommodate. Two, the virus kind of got people's minds off of Brexit. You know, they didn't pay attention, you know, so much. So it wasn't weighing on people in terms of economics. So coming out of it, at least getting a little better in the virus, they started to figure out. And three, we made changes to our network to try to make it, try to get training. The new product there is every bit as robust as here. It just follows a little bit later. So we're introducing some of the diagnostics that had already been introduced here and wasn't there and other new products. So there's a constant stream of new products. It wasn't different than the U.S., but, I mean, we kept pounding the new product in there. I think those are the three factors. Now, it was up, as you say, it was up quite nicely. We'll see how it plays out. I don't think it'll get shocked again, though.

Got it. Thank you. Sure.

We'll take our last question from David McGregor with Longbow Research.

Yeah, good morning, everyone. Nick, congratulations on a good quarter. I guess the question has been asked earlier about some of the spending patterns and technicians that came off that 90-day deferral. And I just wonder if we could go back to that to start off with here. And just the guys that qualified for that program and benefited from that program, as they came off that program, what kind of spending patterns did you see from them? Or were they pretty much removed from the market and the strength that you've achieved this quarter is off the balance of the base?

David, I think people keep spending. We don't want to isolate on whether you have just an EC loan. Remember, they have two-thirds of their business activity are with the franchisee on a revolving account type basis. I think they remain generally active. I'm sure you get all kinds of examples. Some people might not buy for a while. Other people keep buying each and every week. You get all kinds of patterns. But the fact that there was a deferred program I don't think really radically changes the flow of activity. Because, again, we've had programs like this. More was done in Q2, certainly given the unusual nature of it. But I think the customers stayed pretty consistent. And the thing you have to always remember, people asked me earlier on the call about stimulus. Remember, everybody who has a job, and I think we said that most of our customers basically have a job, has more discretionary money in their pockets simply because a lot of other venues to spend your money are not available, whether it be going to dinner, the movies, a sports game, so that people have more money beyond just stimulus checks coming in the mail. And technicians like to buy tools. It's been demonstrated over the tunnel of time.

One would think, though, that if somebody's coming off a 90-day furl because they were strapped for credit, that they might not be very aggressive buyers.

Wait a minute. Wait a minute.

That's an assumption that's untrue. Is it? They're not strapped for credit. Look, here's the thing. We didn't just give 90-day credit to the people who were strapped for credit. We offered 90-day credit as a reason to buy now. It's like a car loan. So the point is, I think the point is, is those people, you know, here you are, you're going to buy a steel titan, David.

Okay, I can get a 90-day deferral or not.

Take it.

I might take it, right? You might take it. With all the money that you have, you might take it.

Yeah, yeah, right. All right, thank you for that clarification. I appreciate that. I wanted to explore as well the divergence between kind of the growth that you achieved in CNI and RSNI versus what you were seeing in the tools group, and And I appreciate directionally both CNI and RSI are moving positively versus what you printed in the second quarter. But still, high single-digit declines in CNI, high single-digit declines in OEM, dealership, business, and RSI. Seems a little in contrast to, you know, up mid-teens in the tool group. So I guess your thoughts on that divergence, and then secondly, do we see those other businesses catch up here in the fourth quarter? I think this.

I think they have the potential to catch up. I'll tell you what. I think you can write this in a black-letter law in your shorts about this. In general, what we see is when you have anything like this, you know, in terms of a macro, what we see is the smaller businesses, If they continue in the business, which vehicle repair has been continuing in the business, they don't think so. You know, they're like making money. They're spending it. They're kind of rolling. I do think the bigger the business, the more it tends to look at it. Oh, yeah, what's going to happen in the future? I'm not sure. They get a little bit more reticent. They have a little bit more, I guess, forward outlook that troubles them in the day, that weighs on their decision-making in the day. I think this has happened through my entire time here. We've seen this as macroeconomic expectations go up and down. So if you look at CNI, you see certain of their segments particularly troubled. particularly trouble, other segments like military and international aviation up and you see a little bit of heavy truck, you know, a little bit better. And so you can see that. But eventually, we see them recovering. That's the difference. It's actually the milieu, the industry, the environment, and also the fact that the garages are smaller and therefore closer to that cash action and the actual action and therefore more confident as they see it continuing. I think this is psychological. And then if you go to RS&I... I think you're looking at a two-pronged effort. You have the independents, which tend to get a little better, but you also have the dealers, who were pretty shook off at the beginning. They were coming into the virus, as you probably know, with probably a negative view. Hey, the SARS is going to be down for next year. This is going to look good, huh? Maybe we're going to, you know, so the thing is they sort of entered this with, kind of a down look and maybe even extra inventory. So then they got through it and they start to come up. But I think those guys get a little bit more reticent going forward in terms of investing. Remember, C&I and RS&I tend to be more capital-based type actions. They're good business, but they're more capital. And you would see them being more, I guess, cautious. I think they come out of it, though. I think we're loving the RS&Is.

RS and I looked this quarter, really. Let me just ask you as well, because we're at the top of the hour here and we'd like to wrap this up, I'm sure. It seems like software sales may have been a stronger contributor this quarter as well. You talked about the Apollo D9, but there were some other introductions as well.

Look, software is about a third of RS and I. The Mitchell One software business, which is repair shop information and running the repair shops in both cars and trucks. But in the tools group.

Oh, you're talking about the tools group. I'm talking about the tools group here.

Sorry.

The tools group, the software business was pretty good, but I wouldn't say it was an extraordinary contributor, an outside contributor. It didn't stand out really in any way to us so much in this quarter. It was okay, but you wouldn't have called it a variance driver.

Right. And then last question for me, if the franchisees are taking big ticket again, it sounds like your storage business was good, it sounds like diagnostics is okay, we should see some pretty good originations numbers in the fourth quarter, shouldn't we?

So what would be your... Well, okay, you know. Assuming it sells, right? Well, so that's, I guess, right? Right? Right? That seems okay. Yeah, that's a reasonable assumption. Right.

So if we see... I guess, David, they always have a choice to make. Remember that Snap-on does benefit by having what I would say is the industry's leading residual values. So when they take trade-ins, particularly in diagnostics, it becomes a factor. That's why the penetration rate on diagnostics, for one reason, is lower. There's a good chance that the finance can be handled through the RA account. If you take in, as an example, a $2,000 trading unit on a $3,000 item, they don't have to necessarily finance the EC. So that's why you get a little bit of a different blend. And I think in this low interest rate environment, some franchisees feel they have the wherewithal to stretch a bit or borrow locally if they don't borrow from Snap-on Credit. and I think they have some versatility given a low interest rate environment. So that's why you don't necessarily have the same predictability as to what falls onto the EC program. Again, remember, the franchisee decides that. Snap-on doesn't decide that.

No, I know, but I would think at this point the franchisee would consider I got 100% risk on the RA versus 25% risk on the EC, and I'm probably better put. That's not necessarily true.

Yeah, but David, take a step back. You can look over the long total of time, our default rates, and the franchisees see this. Remember, our franchisees are pretty long in the tooth. They have, on average, 14 years of experience. They see that the defaults, while never guaranteed, are pretty predictable to some extent, and through good and bad times, kind of steady. So they don't rush to outboard. At least, again, always on the fringes, you'll get a little bit of everything. But they don't rush to panic and say, well, Let's give it a snap on credit because they only have 25% exposure versus 100%. Of course, there's some that might consider that. But the great population does not.

Yeah, David, the franchisees have an internal calculus that says, I want to have a certain amount of short-term RA and a certain amount of longer-term stuff. They try to maintain it in that way. So to the extent they have what I would call a borderline event in a sale, that might push them one way or another. I believe that to be pretty true. And so the thing is, yes, it's 100%, but it's shorter term. If they think the guy can pay it, they like it, they'll get it. They'll get him liquidated and on to something else.

Sometimes people use as a metric, David, the RE flips, which we don't look at it that way. But some people say, oh, RE flips, if they're up, that must be bad things are coming. RE flips are actually down from historic levels. Now, again, we don't read a lot into that, but okay. It doesn't seem like the franchisees are trying to offload credit riskiness in any dramatic way.

Not to mention the franchisees seem flush. I mean, they're kind of pretty low in terms of on hold. So I think, you know, as a network – I think the franchisees are probably in a better place than they've been in a long time.

Well, thanks for taking my questions. Sure. Good luck this quarter. All right. Thanks.

Thank you. That concludes today's question and answer session. Ms. Furbski, at this time I will turn the conference back to you for any additional remarks.

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, and good day. Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect.