Snap-On Incorporated

Good day and welcome to the Snap-on Incorporated 2022 Fourth Quarter and Full Year Results Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, please press star then one. Please note that this event is being recorded. I would now like to turn the conference over to Sarah Burski, Vice President of Investor Relations. Please go ahead.

Thank you, Cole, and good morning, everyone. Thank you for joining us today to review Snap-on's fourth 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 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 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. Good morning, everybody. Wow. It's been some year and quite a quarter. China knee-jerking from zero COVID and strict lockdowns to living with COVID and unprecedented virus explosions. Diminished but still continuing spikes in the supply chain. The ongoing Ukraine war. The re-emergence of Brexit. And now the rising shadow of the recession, echoing in almost daily public pronouncements. And through it all, Snap-on delivered another in a long line of encouraging performances. We'll go through it. Starting with the highlights of the quarter and the year, I'll give you my perspective on the results, the market environment, and our progress. And after that, ALDA will move into, as usual, ALDA will move into a more detailed review of the financials. The fourth quarter was encouraging. We believe it emphatically demonstrated the continuing resilience of our markets and the capability of our operations to achieve in the face of difficulty, wielding the power of our product, our brand, our people, and our strategic position. It all combined to serve as clear evidence of what we already know. Snap-on is a unique and extraordinary operation. The results for the fourth quarter serve as more testimony to that fact, and they're an unmistakable demonstration of our continuing momentum. Of course, we did witness differences from group to group and within the operations, but we believe the overall results are compelling. Fourth quarter sales of $1,155,000,000, as reported, up 4.3% from 2021, included a substantial impact from unfavorable foreign currency of $37.7 million. a 370 basis point headwind, and an organic sales increase of 8% over last year, and that represented a 22.7% rise over 2019. This now represents the corporation's 10th consecutive quarter above pre-pandemic levels. It's a trend of, I think, some significance in uncertain times like these. From an earnings perspective, our off-goal operating income for the quarter, including the impact from unfavorable foreign currency, was $248 million, up 6.8% compared to 2021, and 44.7% above the 2019 pre-pandemic level. The oil margin for the quarter, it was 21.5%, improving by 50 basis points over last year and 360 basis points over 2019. You know, It's the same resiliency that's been demonstrated over the years as we paid dividends every quarter since 1939 without a single interruption or reduction. In fact, in November, our dividend was raised by 14.1%, marking the 13th straight year of increases. It's more testimony of Snap-on's consistent performance through varying environments. This is just another one of them. For financial services, operating income of $63.9 million was down from $67.2 63.9 was down from the 67.2 million in 2021. And that decrease reflected the forecasted return to more historical provision levels, but all while keeping delinquencies flat the last year. And our overall quarterly EPS reached $4.42, 32 cents or 7.8% above 2021 and up 43.5% compared with 2019. Well, those are the numbers. Now to the markets. We believe that automotive repair remains very favorable. It makes sense, you know. The average age of vehicles continue to increase. The complexity of repairs is rising steeply as new platforms enter the vehicle park. And enter they have, starting in dealerships. And we have seen a resurgence in dealership projects despite still recovering supply chains. Changes in internal combustion, the rise of electric vehicles, and the expansion of vehicle autonomy have made dealerships eager for new equipment to support complex repair tasks of the evolving vehicle park. And we see it. Projects and powertrains aside, dealerships continue to see healthy demand in repair, in maintenance, and in warranty, driving the need for shop expansion and more technicians. You can see it in the macros. Repair spending, technician numbers, technician wages, All up. Our dealership segment is expanding. And, you know, for our independent repair shops, confidence remains sky high across the board. Shop owners and managers confirm that demand for repairs for technicians and for complex skills are all rising. And our sales growth in that sector mirrors that enthusiasm. We believe we're moving into what we can be called the golden age of vehicle repair, and our tools group and our RS&I group are uniquely positioned with the product, the brand, and the people to take full advantage, even in the midst of turbulence. You can see it. Now for the critical industries, where our commercial industrial group, or CNI, operates. We continue to see progress, but the group spans wide jurisdictions, and as such, various headwinds across the geographies and the industries have attenuated some of those gains. For geographies, Europe with the war and the reemergence of Brexit, and China impacted by the COVID chaos, where a stark contrast to relatively strong North American markets, a lot of variation. And the range and variability among sectors also continue to be a challenge. Natural resources, heavy-duty fleets, general industries, and international aviations were robust, but the military area remained challenged. Overall, however, order demand for most of the critical industries has been strong And we believe that's a great signal for CNI's future. So CNI does have challenges across geographies and the segments, but we have made advancements, and we see opportunities for tomorrow. Going forward, we believe we'll keep moving down our runways for growth, our wide runways for growth. And as we proceed, we're also fortified, as all of you have heard before, by our snap-on value creation processes, safety, quality, customer connection, innovation, or rapid continuous improvement, or RCI. They're the core processes that drive our ongoing progress, especially customer connection and innovation, growing our product line. You see, our franchisees and our direct sales force possess a strategic advantage, standing face-to-face with professional techs, understanding their individual challenges, showcasing the solutions created by our powerful products, and demonstrating their use. Our resilient markets... do represent a significant opportunity, and we are there to take advantage, up close and personal, like no one else, right where the jobs are done. And it's working. 2022 was a year of substantial headwinds, but our team prevailed. With the year achieving new heights, sales up $4,492,800,000, up 5.7%, reflecting an organic gain of 8.7% compared to 2021, and a 20.2% organic increase versus 2019. The OPCO ROI margin for the year was 20.9%, up 90 basis points from 21, and exceeding the pre-pandemic margins by 170 basis points. As reported, earnings per share for the year were $16.82, up 12.7% from 21, and represented a rise of 35.5% from 2019. It's all evidence of the decisive and ongoing momentum that marked the year and the quarter. Now to the operating groups. Let's start with C&I. Fourth quarter sales, $343.2 million for the group. We're down $15.5 million versus last year, including $21.2 million in unfavorable currency and a 1.7% organic gain. Our specialty tools division was a clear positive with double-digit gains. Precision is becoming essential every day, and our torque products are putting us right in the middle of that rise. Our critical industries also showed strength, especially in North America, propelled by growth in natural resources, general industry, and heavy duty, partially attenuated by lower military activity. Outside North America, it was a different story. S&A Europe was down, and China was diminished. OI for CNI was 47.9 million, down 2.2 million, primarily from the 2.3 million in unfavorable foreign currency. The group's operating margin was 14%. It was flat to last year, but still represented an advance 120 basis points over the pre-pandemic level of 2019, and that was against 50 basis points of negative currency and acquisition dilution. The specialty torque business within CNI really is making significant strides. Torque is hot, and Snap-on has a widening array of new offerings to prominently participate in that trend. Products like our new series of digital torque checkers. It's from our Norbar engineering team. You might remember we acquired Norbar a few years ago. Our Norbar engineering team in England, more compact and easier to use. It helps technicians validate the accuracy of torque instruments close to the workplace, saving a lot of time. Our new checkers accommodate torque measurements from 5-inch pounds to 1,500-foot pounds, jobs from precision fasteners in a jet cockpit to a heavy duty bolt on a giant oil rig, a wide range of applications. And it's compact steel housing easily mounts in a variety of, this is the key, compact steel housing easily mounts in a variety of convenient locations at the point of issuing or in the pathway of the workflow, like tool cribs, aviation hangers, and manufacturing cells, making torque checking an easy exercise. With an accuracy of plus or minus 1%, our new checker increases process quality without a work interruption, raises consistency in assembly activity, and with its streamlined documentation feature, greatly improves the management of fast setting in any application. The initial launch was well received by any operation realized on Precision Torque, and there are a lot of them. And as you can imagine, the new checker is right on track to be a snap-on hit product with sales of A million dollars in the first year, so it looks like it's a pretty strong product for us. CNI, mixed progress, challenged with headwinds, but it did have significant areas of improvement paving the way for future growth. Now on to the tools group. Quarterly sales of $542.7 million, up $37.9 million, including 9.5% in unfavorable currency and a 9.6% organic increase. gains in the U.S. operation, and continued expansion in the international networks. And it was all led by big-ticket items, tool storage and diagnostics, both with baffled double-digit gains. Operating earnings for the tools group were $116.1 million in the quarter, 5.6 million above 2021, and that included $4.5 million in unfavorable currency. The operating margin was 21.4%. 50 basis points below last year, but that was impacted by currency and by product mix, but it was still a result of considerable strength. Tools Group again represents the ongoing power and market leadership of our VAD network. It's written across the financials, and that positivity is is clearly and boldly echoed in the voices of our franchisees. I can tell you, I was just at one of our annual kickoffs. It's unmistakable that they're pumped, enthusiastic, and confident. They know they're growing, and they firmly believe there's more to be had. And our franchisee health metrics confirm all of that to be true. The quantitative trajectory delayed in that data supports every bit of the positivity, of the positive attitudes. And the franchisees expressed their excitement in more formal ways. During the quarter, we were recognized by the Franchise Business Review, which surveys franchisee satisfaction. In its latest ranking, that publication once again, latest annual ranking, that publication once again listed Snap-on as a top 50 franchisee, marking the 16th consecutive year we received that award. And internationally, Snap-on was ranked number one, number one, in Elite Franchisees Magazine's top UK franchises for 2023, finishing not only above the UK-only franchise systems, but also coming in ahead of the very popular global brand, a number of very popular global brands. Now, that type of recognition reflects, I think, fundamental strength of our van business and would not have been achieved without a continuous stream of innovative new products as part of that. Snap-on continues to lead the industry with great tool storage innovations designed to improve productivity and allow techs to personalize their workspace. We're the first to market with the LED power top, brightly lighting the gleaming Snap-on tools like special jewels as each drawer is accessed. It's quite a sight. It enables the techs to show the pride in their work. And building on that feature, in December, we started shipping the first of our new Iris tool storage units. It's a 68-inch special edition Epic roll cap, which allows the technician to adjust the drawer lighting with an infinite array of color selections. It is an eye-catcher. Coated in storm gray paint paired with red trim, and it also features, besides its appearance, it also features for the first time a specially lit Snap-on logo nameplate. It's innovative, striking, and as for all Epic boxes, all of them, It streams functionality. The power top and the power door provides 10 electrical outlets and four USB ports throughout the roll cab. That ensures that all the cordless tools, the lights, the accessories are charged and at the ready. It also features our unique speed drawer for smart, customizable tool organization. It's a very popular and productive feature in the shops. Convenience, productivity, and distinctions. The IRS received an overwhelming reception, helping to drive the landmark tool storage we had just in the fourth quarter, landmark tool storage quarter we had just recently, shows that pride really is a powerful salesman. We show that every day. Well, that's our tools group, booming in the U.S., progressing internationally, continuing the stream of new products, building the brand, enhancing the van channel, and moving forward with momentum. Now for Arseni. In the fourth quarter, Arseni Group results confirmed what we've been saying all along. Snap-on is well-positioned for the ongoing rise in vehicle repair. Arseni sales in the quarter of $437.9 million increased 11.6%, including $9.5 million in unfavorable currency increases and a 14.3% organic gain. Boom, shakalaka. That rise was authored by a great performance, and that rise was authored by double-digit increase in OEM dealerships as manufacturers continue to release new models, invest in new equipment, and implement essential tool programs. But our business in the independent garage has also expanded nicely with double-digit growth in our undercar equipment and in our diagnostics and repair information products. Twin pillars of strength. Shop owners need upgrades to follow the changing car park, and they now have confidence regarding their futures to act on that imperative, and Snap-on is ready to help. Arseneye operating earnings for the quarter were $110.6 million, up 13.8%. And again, in the operating margin, it was 25.3%, rising 50 basis points over 2021, exhibiting our team's ability to navigate the turbulence, wielding snap-on value creation, connecting with customers, launching innovation, executing RCI, and doing what they're expected to do. Keep raising profitability. One example is our diagnostic business. Double-digit growth, led by new products Led by new products. Last quarter, you know, we mentioned the launch of our game-changing hand-held intelligent diagnostic unit, the Zeus Plus. Well, it's selling at a record pace. It's hard in hardware and in software subscriptions. It's a great unit that, again, raises the bar for an advanced repair, providing technicians with a powerful health and troubleshooting and diagnosing the most complex of vehicle repairs. Zeus Plus makes those special challenges that take up so much shop time appear quick and easy, and the techs are noticing. RS&I, the repair shops are confident, seeing a great future, and RS&I has the products to pave their way. Well, that's our fourth quarter. Opco organic sales rising 8%. Ten quarters of consecutive growth from pre-pandemic levels. Tools Group demonstrating strength. Organic sales up 9.6% over last year, rising 33.2% from pre-pandemic levels. RS&I, products to meet the needs of the vehicles of today and of tomorrow. Activity up 14.3% organically. Gains in both OEM dealerships and independent shops. CNI showing potential for growth despite international headwinds. Strong momentum in the critical industries with much more to go. And it all drove a 21.5% operating margin for the overall enterprise, rising 50 basis points from last year and an EPS of $4.42 up over every comparison. It was another encouraging quarter. Now I'll turn the call over to Aldo. Aldo?