Snap-On Incorporated

Good day and welcome to the Snap-on Incorporated Q4 full year 2024 results conference call. All participants will be in 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, you may press star then one on a touch tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Sarah Verbsky, Vice President of Investor Relations. Please go ahead.

Thank you, Alan, and good morning, everyone. We appreciate you joining us today as we review Snap-on's fourth quarter and full year results, which are detailed in our press release issued earlier this morning. We have on the call 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 the webcast viewer as well as on our website, snap-on.com, under the Investors section. These slides will be archived on our website along with a transcript of today's call. Any statements made during this call relative to management's expectations, estimates, or beliefs or that otherwise discuss management's or the company's outlook, plans, or projections are forward-looking statements, and actual results may differ materially from those made in such statements. Additional information and the factors that could cause the 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. I'll start with the highlights of our fourth quarter. I'll give you my perspective on the results, on the market environment, and on our progress. It was considerable. After that, and as usual, Aldo will move into a more detailed review of the financials. These are interesting times. Filled with uncertainty, but Snap-on is built to prevail even in turbulence. And you know, this ain't our first rodeo. It's our job to confront and to overcome and to proceed with confidence. Confidence in the resilience of our market. Confidence in the strength of our strategic and tactical advantages. And confidence in the insight and energy of our consistent and capable people. And all of that echoed in the numbers, so here they are. Overall sales in the quarter were 1,198.7 million, up 0.2%, both as reported and organically. Return to positive territory. Profitability was strong with gross margins of 49.7%, a gain of 140 basis points. And the OPCO OI margin was 22.1%, an increase of 50 basis points over 2023, an all-time high for the fourth quarter. Financial services earnings of $66.7 million in the quarter were lower by $1.2 million, leading to a consolidated margin, including both OPCO and financial services, of 25.5%, an improvement of 30 basis points. Our EPS for the quarter was $4.82, up 7 cents from the $4.75 recorded last year. The results show broad gains overcoming the uncertainties. another period of sequential progress, wrought by record performances by both the commercial and industrial CNI, by the commercial industrial CNI group, and by repair system information, or the RSNI group, combined with the tools group, successfully pivoting to match tech preferences and continuing to narrow the gap versus last year. It was an encouraging demonstration of advantage, of resilience, and of capability. But first, let's speak about the markets. We believe the vehicle repair market is robust, a continuing stream of new tools and data to confront the rising complexity of the modern vehicle. The repair shops today, dealerships or independents, must deal with an expanding array of challenges, multiple powertrains, EVs, plug-in hybrids, superhybrids, advanced combustion engines, sophisticated digital systems, and a wide range of autonomous operations, devices like adaptive cruise control, lane departure warnings, collision avoidance sensors, self-parking features. It goes on and on and on. And the list is getting longer. And technicians have to fix it all, addressing a dizzying array of procedures. It's daunting. But this is where Snap-on shines, scanning, diagnosing, guiding, and fixing, enabling the text, making the difficult tasks easier. And when combined with an aging car park that now averages 12.6 years and includes a multitude of technology generations, all needing to be fixed, driving even more complexity, and requiring even more tools and more data, it represents even more opportunity. We love it. Vehicle repair has several slices, so let's start by focusing on the shops, the dealerships and the independent shops. Adjusting to the complexity, often requiring things like new lifting equipment to handle the increased weight of EVs, tire changes that accommodate larger wheel sizes, software suites for managing the shops, for organizing parts data into streamlined catalogs, for scheduling repairs and customer interfaces, and for guiding the techs to the most sophisticated or complicated of repairs. This is where RS&I operates. It's a target-rich environment for our array of undercar and collision equipment, and it's a growing market for our software and data products. And Snap-on's well-positioned. With our innovative hardware, but especially with our proprietary comprehensive database, billions of insightful records, there are advantages that we believe make Snap-on the data king in vehicle repair. A position that I think you'll see was reinforced again by our quarter, by our rising gains in that arena. Now let's shift to the techs. The individuals working in the bays, under the hood, twirling the wrenches, hitting the touch screens, applying their skill and actually making the repairs. Again, this quarter I had the opportunity to meet with a number of franchisees and their customers. And they all expressed their enthusiasm for the strength of vehicle repair and external data Confirms that view. The car park, aging. Hospital spending on auto repairs higher. Hours of work increasing. And best of all, tech wages rising. I was recently in a garage and the service manager emphatically proclaimed to me that the work just keeps rolling in. We need more tech. Makes sense. Expanding complexity means more time spent on each repair and more trained professionals needed to meet the demand and keep the shops prospering. So it's clear the techs are in a good position, but that doesn't make them immune to the macro uncertainty around them. Ongoing wars, immigration disputes, lingering inflation. And although the election's in the rear mirror and the new team may be more focused on business expansion, There's a rapid fire of new initiatives, tariff bombs, on and off again actions, impending shakeups, and foreign ventures of many varieties. Up to now, it's hard not to be uncertain about what's up. So the franchisees, you know, they echo that uncertainty. And in the turbulence, the technicians continue to prefer quick payback items, ones that make work easier and cut labor times right away. Items like hand tools and mid-range diagnostics that can be paid off in shorter cycles. And they remain cool on big ticket, longer payback items like tool storage. So the tools group is continuing its pivot, focusing its engineering, its manufacturing, and its selling to match the shift in those customer preferences. So despite some challenges, automotive repair does remain strong. And we believe we're pivoting successfully to take greater advantage. Now let's talk about critical industries, where CNI takes Snap-on out of the garage, solving tasks of consequence that require precision, durability, reliability, and repeatability, all performed in some of the most demanding and grueling environments, from clean rooms to mine pits to assembly lines to building spacecrafts. And this market, I can tell you, is very promising. Our activity in critical industries continued rising across multiple sectors. Aviation, natural resources, and general industry were all up nicely. The arena also represents our most significant international presence, and those markets were mixed. In Europe, UK and Southern Europe, up. Germany, down. In Asia Pacific, China weaker, but gains in Japan and Southeast Asia, despite unfavorable currency. And gains in South Korea as well. I'll add that to that situation, despite the unfavorable currency. So CNI does have its challenges across the geographies and the segments, but we have made significant advantages, advancements, and do see substantial opportunities for tomorrow, leveraging our advantages in product, in our brand, in our people. And, you know, I think when you see the results, you realize it's working. So both the auto repair and critical industries market remain positive, and we're ready and well-positioned to advance on those very wide runways. At the same time, it's clear to us, and I hope it's clear to you, that we have more potential along our runways for improvement. And as we proceed, we're fortified by our step-on value creation processes, safety, quality, customer protection, innovation, rapid continuous improvement, and rapid continuous improvement, or RCI. They've never been more important, helping overcome the turbulence and and authoring our resilience. Especially important is customer connection and innovation. That's our unique advantage, standing next to working men and women, observing each task, matching the insights gained with technology mastered, developing new and innovative products that makes work easier. And it's a considerable strength, and our team is committed to continue to wield it with determination. Now let's talk about the operating groups. We'll start with C&I. Fourth quarter sales of $379.2 million was an all-time high, represented an increase of $15.3 million versus last year, and included $2.1 million in acquisition-related sales, a million in unfavorable foreign currency, and an organic rise of 3.9%, driven by gains with customers in critical industries. Strong sales of our customized kits led the way, meeting the rising demand for solutions that match specific tasks. Our specialty torque division was also a clear positive. Precision is becoming more essential every day, and our broad torque offering puts CNI right on target, and you can see it clearly in the numbers. OI for CNI was 63.5 million in the quarter, up 9.4 million or 17.4% from 2023. And the group gross margin, it was up 180 basis points, and the operating margin was 16.7%. That was also up 180 basis points. Wowza! CNI just keeps getting better. It's a great indication of our ability to roll out of the garage. The specialty torque business at CNI is really making strides. Torque is hot now, you know, and Snap-on is at the party with a growing array of new products, like our heavy-duty cordless torque multiplier. We call it the CTM800, delivering torque from 160 foot-pounds all the way up to 800 foot-pounds, just what's needed to meet the broad challenge across mining and oil and gas and rail and heavy-duty. It's a tool that was made possible. by our expansion in torque. Combining the efficiencies of a Norbar gear design with the compact operation of a Snap-on power tool, authoring the wide range, making the delivery of high torque levels easy and safe, enabling easy access to tight spots, The new unit is also equipped with a specially designed transducer control for applying just the precise force, a breakthrough. And it benefits from our advanced power tool cooling system that makes it much more durable. The CTM800 torque packs a lot into one compact tool. Improvement in versatility, safety, access, durability, and precision. It has it all. And where the tasks are critical, it's already a big hit. B&I, sales up, customized kits and precision torque, rising to new levels, all with record profitability, a high point profitability, with much more room to grow and improve. Now onto the tools group. Quarterly sales of $506.6 million, down, but representing progress on narrowing the gap versus 2023. The progress is evident, but uncertainty still lingers. And ONI for the tools group was $106.9 million, $4.1 million below 2023, with an operating margin of 21.1%. But despite the turbulence, we remain steadfast in supporting our VAN network, keeping it strong, spending on it. And that profitability was reasonably acknowledged by multiple publications. The Franchise Business Review recognized us in its latest rankings for franchise satisfaction, listing Snap-on as a top 50 franchise for the 18th consecutive year. We're named number one among all franchisees in Entrepreneur Magazine's 2024 list of top franchises for veterans. And Snap-on was ranked by the UK Elite Franchise Magazine as the number one franchise in that country. a distinction we've held for three consecutive years. Now, these types of rankings confirm the fundamental strengths of our franchisees individually and of our van business in general. And I can tell you that this would not have been achieved without a continuous stream of new products developed through our strong customer connections, insight and experience transferred transformed into innovation for a significant advantage in the rapidly changing world that's vehicle repair. One of the latest of those additions is our Milwaukee manufactured special hex driver, specifically designed for modern vehicles equipped with advanced driver assist systems like adaptive cruise control. In the base, standing side by side with the techs making the actual repairs, we saw the difficulty in aligning the radar sensors that enable that autonomous control. enable the adaptive cruise control. And the work was difficult. Texel removing the bumpers and the grills, dismantling the front end of the car just to reach the workplace, a very time-consuming and non-value-added exercise that also risked damage to nearby parts and components, all just to clear the pathway for the eventual repair. That observation drove the design of our new NDDM35, a 3.5 millimeter hex driver featuring an extra long 5 3⁄4 inch shaft and an enhanced reach that bypasses the obstructions with ease, allowing the necessary adjustments without dismantling anything. That newly launched tool also includes our Snap-on Instinct ergonomic handle design, providing superior control, making it easier to execute the work with the precision required for the very sensitive radar brackets. Our new M35 makes repairs faster, easier, and more profitable, and the techs have noticed it. Also in the quarter, we launched a new lineup of hand tools based on another customer connection. Witnessing the difficulty of applying leverage to the open end of a standard combination wrench, the box end of the tool was great for engaging a fastener in a crowded engine bay, just slide it right in there. But when extreme force was needed and a grip at the opposite far end was necessary, the task was extremely uncomfortable because the open end of the wrench digs into your hand. To solve the problem, our engineers designed our new XD-SGM, a series that combines a box-end, low-profile head with a soft-grip ratchet handle, providing the access technicians need, but enabling the maximum force to be applied comfortably with the ergonomically and contoured cushioned grip handle, breaking bolts free without wincing in pain or slipping off under load. The new XD-SGM... I talk about it here because it's a prime example of a fast payback item, a simple but powerful innovation that makes work safer, faster, and easier, and the techs have loved it, making the wrench one of our million-dollar hit products just since it launched a few months ago. Well, that's the tools group. Customer connection, producing innovative products, operations continuing to pivot, meeting the customer's precedence for fast payback items, and making progress and narrowing of the gap, all while keeping the network strong in the turbulence. Now, for ours and ours. Volume in the fourth quarter was $456.6 million, up organically 1.6%. Gains with both OEM dealerships and with independent shop owners for diagnostic platforms and repair information products, partially offset by lower activity and undercar equipment. RSI operating earnings in the quarter of 121.4 million represented an increase of 8.1 million or 7.1%. Gross margins were up 200 basis points. And the operating margin, the operating margin, the operating margin was a strong 26.6%. Up 150 basis points from last year, from the prior year, the highest ever. A record, and the record reflects a rise in software. But it's also evidence of strong and broad RCI with the great majority of RCI businesses, software and hardware, increasing margins by well over 100 basis points. Boom, shakalaka. We really love that kind of thing because it makes our profitability soar. Speaking of profitability, our Mitchell One Specialty Software Division is provides software to independent shops, continues its incandescent success, expanding its database, big data, reaching 3 billion repair records and 500 billion data points, a powerful and proprietary advantage that fuels our intelligent diagnostic platform, communicating directly with vehicles, translating the trouble codes, supplying complex inductive You know, wielding complex inductive models, identifying the problem, and guiding technicians through the repair process, all with unprecedented speed, productivity, and profitability. Now, we can't talk about that without talking about the Apollo Plus, the newest member of the intelligent diagnostic lineup, released in the late third quarter, and it continues to shine, surpassing previous generations and growing. Very importantly, expanding the number of software subscriptions. It's easy, fast, and smart. And for this day and age, at this time, it represents a tech's quickest payback access to the power of Snap-on Intelligent Diagnostics. We expected it to be a winner, and it is. Also in the quarter, Undercar Equipment Division released the new V4400 Commander Wheel Alignment Machines. It's a game changer for shops because of its unique flexibility. You know, a lot of shops don't have space and they don't do alignments at all. They send them out. Garages today need new equipment for matching the equipment of that time, for matching the rising vehicle complexity. For example, alignment has never been more important. But where do you fit the new units without a costly expansion? And in many cases, the buildings are already landlocked. And shop owners can't sacrifice an everyday repair bay for periodic but necessary profitable alignment procedures. So the answer is the V4400, a versatile, smart, and modular system. It's got an innovative design with a control center housed in a small toolbox. that wirelessly connects with the two twin independent mobile towers that hold a sophisticated force camera setup. Those sections can easily be stored out of the way while not in action and can be assembled anywhere in the shop quickly, delivering an alignment capability as needed and on command, regardless of the layout, whether your shop is short or wide or deep or narrow. It doesn't matter. And our proprietary software, based on our four-camera systems, enables a very quick setup. So, therefore, setting it up is pretty easy and quick. And no shop is perfect, so our system also automatically eliminates imperfections, like unlevel lifts or uneven floors, ensuring an accurate, straight-as-an-arrow alignment. The V4400 aligner is nimble, versatile, quick, and smart. and it makes profitable alignment possible in many more shops. It's a great product. We keep driving to expand RS&I's position with pair shop owners and managers, offering more new products, all developed by our value creation processes, and we're confident it's a winning formula. And the Q4 results say it's so. Well, that's the quarter. Sales up. 0.2% back to level. Opco operating margin at 22.1%, up 50 basis points, a new all-time high for the fourth quarter. The tools group down, but narrowing the gap. The pivot is working. RS&I operating margin, 26.6%, up 150 basis points, another profit high for an already high margin group. CNI operating margins, operating earnings, up 17.4%. Operating margins, 16.7%, up 180 basis points, also at a high. Resilience, balance, advantage, and results. It was an encouraging quarter.

Now I'll turn the call over to Aldo. Aldo. Thanks, Nick. Our consolidated operating results for the fourth quarter are summarized on slide six. Net sales of $1,198,000,000 in the quarter were slightly above the $1,196,600,000 reported last year, reflecting an organic sales increase of $2,000,000. Continued strength in sales to customers in critical industries, as well as gains with repair shop owners and managers, offset the marginally lower sales in our franchise band network. Consolidated gross margin improved 140 basis points to 49.7% from 48.3% last year, reflecting increased sales in higher gross margin businesses, as well as benefits from the company's RCI initiatives. Operating expenses as a percentage of net sales rose 90 basis points to 27.6% from 26.7% in 2023, primarily due to increased corporate and other operating costs. Operating earnings before financial services of $265.2 million in the quarter compared to $257.9 million in 2023. As a percentage of net sales, operating margin before financial services of 22.1% represented an improvement of 50 basis points from the 21.6% reported last year. Financial services revenue of $100.5 million in the fourth quarter compared to $97.2 million last year, while operating earnings of 66.7 million compared to $67.9 million in 2023. Consolidated operating earnings of 331.9 million compared to 325.8 million last year. As a percentage of revenues, The operating earnings margin increased 30 basis points to 25.5% in 2024. Our fourth quarter effective income tax rate of 22.5% compared to 21.4% last year. Net earnings of $258.1 million compared to $255.3 million in 2023 and net earnings per diluted share of $4.82 in the quarter compared to $4.75 per diluted share last year. Now let's turn to our segment results for the quarter. Starting with CNI on slide seven, sales of $379.2 million compared to $363.9 million last year, reflecting a 3.9% organic sales gain and $2.1 million of acquisition-related sales, partially offset by $1 million of unfavorable foreign currency translation. The organic improvement is largely due to gain in sales to customers serving critical industries. including a high single-digit increase in specialty torque. With respect to critical industries, in addition to higher torque product sales, activities in aviation and general industries were encouraging during the period. Gross margin improved 180 basis points to 41% in the fourth quarter from 39.2% in 2023. This is largely due to increased sales volumes in higher gross margin critical industry sectors and savings from RCI initiatives. Operating expenses as a percentage of sales of 24.3% in the quarter was unchanged from last year. Operating earnings for the C&I segment of $63.5 million compared to $54.1 million last year. The operating margin improved 180 basis points to 16.7% from 14.9% in 2023. Turning now to slide eight. Sales in the Snap-on Tools Group of $506.6 million compared to $513.3 million a year ago, reflecting a 1.4% organic sales decline and $600,000 of favorable foreign currency translation. The organic decrease reflects a low single-digit decline in the United States business, partially offset by a mid-single-digit gain in our international operations. Again this quarter, We believe that continued attenuation and a relatively modest year-over-year sales decline in the U.S. mobile network favorably demonstrates the resilience of this business given the still uncertain environment. Gross margin declined 60 basis points to 44.6% in the quarter from 45.2% last year, mostly due to the decreased volumes and the effects of increased sales of lower gross margin products. Operating expenses as a percentage of sales improved 10 basis points to 23.5% in the quarter from 23.6% in 2023. Operating earnings for the Snap-on Tools Group of $106.9 million compared to $111 million last year. The operating margin of 21.1% compared to 21.6% in 2023. Turning to the RS&I Group, shown on slide nine. Sales of $456.6 million compared to $450.8 million in 2023 reflecting a 1.6% organic sales increase, partially offset by $1.5 million of unfavorable foreign currency translation. The organic gain includes a mid-single-digit increase in activity with OEM dealerships and a low single-digit gain in sales of diagnostic and repair information products to independent repair shop owners and managers, the latter aided by the introduction of our new Apollo Plus handheld diagnostic platform. These gains more than offset a low single-digit decline in sales of undercar equipment. Gross margin improved 200 basis points to 47% from 45% last year, primarily reflecting increased sales of higher gross margin products, including a more favorable mix of software and benefits from RCI initiatives. Operating expenses as a percentage of sales rose 50 basis points to 20.4% from 19.9% in 2023, largely due to increased personnel and other costs. Operating earnings for the RS&I Group of $121.4 million compared to $113.3 million last year, the operating margin improved 150 basis points to 26.6% from the 25.1% reported last year. Now turning to slide 10. Revenue from financial services increased $3.3 million, or 3.4%, to $100.5 million from $97.2 million last year. Financial services operating earnings of $66.7 million compared to $67.9 million in 2023. Financial services expenses were up $4.5 million from 2023 levels, including $4.4 million of higher provisions for credit losses. As a percentage of the average services portfolio, the financial services portfolio, expenses were 1.3% in the quarter as compared to 1.2% last year. In the fourth quarters of 2024 and 2023, the respective average yields on finance receivables were 17.7% and 17.8%, while the average yields on contract receivables were 9.1% and 8.9% respectively. Total loan originations. of $285.1 million in the fourth quarter represented a decrease of $18 million or 5.9% from 2023 levels, including a 5.8% decline in extended credit originations. The decrease in extended credit originations mostly reflects lower sales of big ticket, longer payback items. Moving to slide 11. Our year-end balance sheet includes approximately $2.5 billion of gross financing receivables with $2.2 billion coming from our U.S. operation. For extended credit or finance receivables, the U.S. 60-day plus delinquency rate of 2% is up 20 basis points from the fourth quarter of 2023. Trailing 12-month net losses for the overall extended credit portfolio of $66.3 million represented a 3.32% of outstandings at year-end. While delinquencies and net losses have been trending upward, we believe that these portfolio performance metrics remain relatively balanced considering the current environment. Now, turning to slide 12 for the quarter. Cash increased by $47.2 million as compared to an increase of $42.2 million in the fourth quarter of last year. Cash provided by operating activities of $293.5 million in the quarter represented 111% of net earnings. Net cash used by investing activities of $40.2 million mostly reflected net additions to finance receivables of 26.2 million and capital expenditures of 18.1 million. Net cash used by financing activities of $201.5 million included cash dividends of $112.3 million and the repurchase of 315,000 shares of common stock for $112.5 million under our existing share repurchase programs. As of year end, We had remaining availability to repurchase up to an additional $429.4 million of common stock under our existing authorizations. Turning to slide 13. Trade and other accounts receivable increased $24.3 million from 2023 year end. Day sales outstanding of 62 days compared to 60 days at year end 2023. Inventories decreased $62.5 million from 2023 year end and on a trailing 12 month basis Inventory turns of 2.4 compared to 2.3 at year-end 2023. Our year-end cash position of $1,360.5 million compared to $1,001.5 million at the end of 2023. In addition to our existing cash and expected cash flow from operations, we have more than $900 million available under our credit facilities, and there were no amounts borrowed or outstanding under the credit facility during the year nor was any commercial paper issued or outstanding in the year. That concludes my remarks on our fourth quarter performance. I'll now briefly review a few outlook items for 2025. With respect to corporate costs, we currently believe that the expenses in each quarter of 2025 will be relatively in line with those incurred in the fourth quarter of 2024, or about $27 million per quarter. Additionally, During 2025, we expect to incur approximately $6 million pre-tax per quarter of increased non-service pension costs, largely due to higher amortization of actuarial losses. These non-cash costs will be recorded below operating earnings as part of other income and expense net on our statement of earnings. We expect that capital expenditures will approximate $100 million, and we currently anticipate that our full year 2025 effective income tax rate will be in a range of 22% to 23%. Finally, in 2025, our fiscal year will contain 53 weeks of operating results, with the additional week occurring at the end of the fourth quarter. This occurs every five or six years, and historically, it has not had a significant effect on our full year or fourth quarter total revenues or net earnings. I'll now call back over to Nick for his closing thoughts. Nick?

Thanks, Aldo. Well, our fourth quarter, progress against uncertainty. The markets remain robust. Repair spending up, the number of techs up, wages up, car park aging, and the vehicle policy rising. But the uncertainty remains. created by the unpredictable macro environment. But we did make progress against the wind. Resilience was on display in the tools group. The pivot succeeding and the gap shrinking. And the balance and breadth of our operations was evident in the performance of CNI and Arseni, both turning in solid quarters with gangbusters profitability. Resilience, balance, and progress written across the results. The tools group, organic sales down 1.4%, but making continuing progress and maintaining the strength of the network. CNI, sales up 3.9% organically. OI margins of 16.7%, up 180 basis points at another high. Significant sales and profit gains and custom kits and precision torque, confirming that we can roll out the Snap-on brand out of the garage successfully and very profitably. And finally, RS&I, sales up 1.6%, OI margins up 26.6%, a rise of 150 basis points, representing another record, all driven by the promising and powerful quarters of software and committed RCIs. It all came together for sales of $1,198.7 million, an increase of 0.2%, a return deposit of territory. The overall gross margin was up 140 basis points to 49.7%, and the OI margin was 22.1%, up 50 basis points, yet another record. We are encouraged by the quarter and by our prospects going forward, notwithstanding continuing uncertainties. We believe our markets will remain resilient and robust, reflecting the essential nature of the critical tasks that define them. We believe we've not only maintained, but have expanded our considerable advantages in product, in brand, and in people, even as we proceeded through the turbulence. We believe our snap-on value creation processes do deliver value every day, day in and day out. We believe our capable team really is a difference maker, battle-tested, and able to wield advantage to consistently create positive outcomes, overcoming obstacles. It's happened over and over, and we have all been witnesses. And we believe that all these positives will keep our enterprise moving forward, extending and continuing its positive trajectory throughout 2025 and for many years beyond. Before I turn the call over to the operator, I'm going to speak directly to our franchisees and associates. I know many of you are listening. I've spoken today on the special nature of our enterprise, resilient, capable, determined, wringing progress from challenge. You are the principal authors of all that. For your success in moving our company forward, prevailing in turbulence and proceeding with confidence, you have my congratulations. For the capability and skill you marshal every day on behalf of our team, you have my admiration. And for your unwavering dedication to and strong belief in the future of our corporation, you have my thanks. Now I'll turn the call over to the operator. Operator?

We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw it, please press star, then two. At this time, we will pause momentarily to assemble our roster. Our first question today comes from Scott Stember of Roth MKM. Please go ahead.

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

Hi, Scott.

In talking about tools, I'm just trying to flesh out how close we are to, I guess, turning positive. Can you maybe talk about the confidence at the shop level? I know you talked about it, I guess, still being high, but I guess they're, you know, confidence high but cash poor. Has that scenario actually gone backwards at all?

And the second part of that question. I don't think it's gone backwards. Look, I think it's like this. I was in a shop. I don't know, a couple weeks ago and talked to some franchisees the other day and talked to some other techs in other parts of the country and talked to franchisees all over the country. And it's sort of like this. I think people are pretty confident that vehicle repair is robust because of all the things I went through on my, you know, the complexity, you know, you see the Bureau of Labor data. It's pretty much everybody's talking about we need more techs. I got a lot of work. I can't do it. Try getting your car repaired and you'll find out what I mean. And then you address the uncertainty, and one thought might have been, I think, is that when the election resolved itself and things went forward, maybe the, I guess, stated positive view of the current team toward business, and particularly toward the people at work. I mean, they said stuff like the other day about it's technical education month, and We will find paths, alternate paths to higher education that will provide real skills for real careers. And we will make technology work for Americans, not Americans work for technology, stuff like that. So those are music to the ears of the text. But on the other hand, they see all these initiatives. And every day you get up and you've got to read the paper on what's going on in Washington. And you hear words like Panama and Greenland and Gaza and all this stuff. And as I said in their remarks, nobody knows what's up. So you kind of have this idea that they're like, you know what it is? It's like being on Space Mountain at Disney World. You get on Space Mountain, you get in a car, and you're in the dark, and the car's going left and right, left and right, and it turns. You don't know where you're going. But you know, you're pretty confident that you're going to get to the right place at the bottom. And so that's where they are now. They're kind of waiting to see what's going to happen. So I think the only change between last time, they're still uncertain. They're still looking at short payback items. But I would think, people often ask me, what do you think would have to happen to make them positive? I think if things calmed down in Washington and there would be more predictable activity and more corridors of advancement that didn't change all the time, and then I think that would be a big change. So that's where I see them now. You know, they're talking about this, you know, we like the administration, but we don't know where they're going.

Got it. And as far as Snap-on and the actual pivoting, are you guys fully pivoted and making the product?

No, we have more to do. We have more to do. But look, I was encouraged by the 1.4s. You know, if you look at it this year, it was something like we came out of the box down 7, then we were 7.7 down, then we were 3.7 down, and now we're 1.4 down, you know, organically. And so... I think that's a pretty positive indication. You could have said, well, it might have been better or worse. I'm pretty confident of our direction because we keep pivoting. We keep getting better at things. But I can't tell you the slope of the curve. Got it. What we're doing is working. It's working.

Great. And then just the last question on CNI and RS&I. Could you tell us what the external sales were for each on an organic basis?

The external sales, I think you could say the external sales for ours and I was closer to what it is. The C&I external sales were somewhere in the range of half of what that was, something like that. It was still kind of in the same range, but around a little bit less than that. that's how it is. Because it was, you know, the idea about CNI, some of the stuff they produce, some of the tools stuff, the Torque stuff, goes through the tools group.

Oh, gotcha.

Okay.

Great. All right, that's all I have for now. Thank you.

The next question comes from Sharif El-Sabeh of Bank of America. Please go ahead.

Hi, good morning. I was just wondering if you could add a bit more color on the decline in originations. Is that mostly a function of product mix, or are you seeing customers finance less of the purchases overall?

Mostly. Mostly. Tool storage down. That was it. You know what I mean? And so, remember, that's part of the pivot, Cherise. You know, in other words, the people are less willing. I think this is a predictable outcome I'll be saying about customer preference. Part of it is they want quick paybacks. In other words, they want stuff that will work right away, but also the stuff is when they buy the stuff off the van on what we would call revolving accounts, they pay it off in 15 weeks, or they pay in cash for it if they want. That tends to be ... They spend more of their money on those shorter items that they liquidate the obligation in 15 weeks, and they don't get involved in a three-year deal. And that is the origination. The other factor is, and you put your finger on it, it was very sage of you, is that the Apollo Plus is at the lower end of the, remember I said it was the quickest payback, which means lowest cost access to full intelligent diagnostics, and more of that would be handled on an RA than, say, like a Zeus, which is much more expensive, like the top of the line. So the diagnostic line, the new product we introduced, could be some portion of that could be handled not on EC. So those are all contributing. But I will point out to you, though, as well, as I do on all these calls, is originations are associated with sales off the van, not sales to the van. So they don't necessarily follow in the same time frame. You know, we sell a box to a van. It doesn't necessarily sell off right away. Sometimes the guy shops it for a while to people. So it's an imprecise science. But what you're seeing most of all, to answer quickly, that 5.9% reduction in originations in total, I believe that was the number, is principally driven by lower tool storage sales.

Thank you. Sure. The next question comes from Luke Young of Baird.

Please go ahead.

Good morning. Thanks for taking the questions, Nick. I'm hoping you could double-click on the strength that you're seeing in specialty torque right now and just at a high level. I mean, it seems like that should benefit multiple areas across both critical industries and, you know, some of the growing opportunities within auto repair. And maybe, Nick, any thoughts around investment there? You know, quickly, I think an organic focus area, but can we see any Additional M&A seems like Mounts has been a pretty good dealer.

That's certainly a place where we've looked at. Mounts last year, which we acquired, I think, in the fourth quarter last year, was a torque-related, a torque-controlled power tool company. So it gave us, it was some of the technology that drove that CTM800 to fruition. One of the things we're doing, I think, We would look to invest in there, and so that would be one of our principal quarters for exploration of things to invest, because we really believe in that. The other thing we're investing in a kind of organic way is to try to bring the operations together to create more combinations. Like the CTM800 is a compendium of the technologies we had in the gears of Norbar. and the drives, the basically front end of the power tools and mounts acquisitions, and some of the systems we have in terms of torque control for mounts and cooling that we had in power tools. And that came together and created a superior tool that we believe has no equal. So you're going to see us look at acquisitions, but you're also going to see us trying to invest some money in smashing those businesses. Not smashing. but try to make sure there's a good irrigation of technologies, related technologies between those businesses, because we believe in some total they are quite powerful.

Good stuff. And then for my follow-up, and I know this is hard to dial in precisely, but Nick, any thoughts on just the continued headwinds and big ticket right here and the origination trend, I should say, and just as we think about the potential growth of the tools group this year, How much of any big ticket would you need if you were going to grow in line with the longer term, 45% relative to the pivot to small ticket? Any way to calibrate how much is left there to go after?

Sure. Look, I think there's a lot left in small ticket. It's a question of getting things that attract people. In other words, the idea behind the pivot is first and foremost, I think, is widening and bringing out more like attractive new product, you know, what I call, we call hey you product, hit products in the small ticket arena. Therefore, getting the customer excited about things, he will actually pull the trigger on in this environment. That's really what's going on here. That's what we call pivot. It includes manufacturing and design and manufacturing and, of course, marketing to dress it all up in a promotion. So you can keep doing that. We believe that keeps us on an upward trend. Of course, if you're having people shy away from big ticket items, you're not firing completely on all cylinders. It's hard for me to answer that trajectory. I think with pivoting, we keep going positive because we know how to improve. We probably don't fire on all cylinders so people get a little more comfortable, but I don't think, you know, it's a matter of if we can keep it. I think there's a, what I would call, almost inexhaustible upward trend in the pivot. It's just we'd like to have all our products because our tool storage products are baffle. It's just that if, you know, so if we could get them engaged, we'd have even more stuff and people would buy even more. So it's a hard thing to answer. But I do think even if we didn't get the uncertainty broken, we believe we could keep going. If the uncertainty breaks, then there would be a more normalization. I'm not saying we can't get back to normal without breaking the uncertainty, but it would take longer. That's all.

Got it. Thanks, Nick.

Sure.

Our next question comes from Brett Jordan of Jefferies.

Please go ahead.

Hey, good morning, guys. Hi, Brett. Let me throw the tariff question out there for you, and I guess sort of relative positioning around what may or may not happen here, you know, your domestic mix versus your competitors. How do you see yourself positioned, and what's the impact?

Well, you tell me how the tariffs are going to play out, and I'll tell you what the impact is.

That's what I was looking for the answer to.

You know what I mean? I don't know. You know what I mean? But, look, I think, you know, let me state this. We certainly are more insulated. from tariffs on imports than most. So if wide tariffs grow on a lot of imported sources, then I think we make out pretty well. Because I like our chances in that situation. That doesn't mean we're totally immune to it. We do have tariff costs right now. We've been eating them for years. We import some stuff that attracts tariffs. But generally we make in the markets where we sell, and a huge portion of our product line is made in the United States or in pretty good shape. If you're talking about other tariffs, you know, retaliatory tariffs, who knows? You never know what people are going to do. But I think this ain't our first rodeo, as I said on my call, and we know our ways around that. When we saw the stuff come up, we were already thinking about ways to kind of minimize and optimize in that situation, and there are paths to do that. So we're not shaking in our boots over the whole thing.

And then on the relative strength of international tools versus U.S., I mean, sort of what do you attribute that to? Is there less competition? There's no Harbor Freight or Matco in those markets. So it's a different competitive landscape or what do you see there?

Who did you say?

Matco, Harbor Freight, Mac, you know, the people who are selling tools in the U.S. market that are not internationally.

No, I don't. Look, I don't. I don't think. I don't think that's the situation. You know, I don't think that, nobody really says that. That's not the situation in the U.S. The U.S. is simply associated, if you think about the uncertainties that are in the U.S., the border, the idea now, you do have the two wars that inhabit other environments. Australia, I think, thinks of itself as being insulated from all that. You have the election, you have what I call the rapid fire ideas out of Washington, you have the rise in prices. I think the uncertainty thing kind of inflicts the US to a greater extent than anything else. Our UK business seems to be more solid. A lot of this stuff, Brett, is where you come from. The international businesses, I think if you go back and look at it, they have been suffering for a while. Now they've come back somewhat. So you're seeing some of that snapback there in that situation. I don't think the competitive environment changes that much really in either place because you have other competitors that are national competitors. For example, if you're in Australia, you've got people there that people prefer and And technicians don't own their own tools to quite the same extent as they do here. You know, you have all that kind of stuff. So I don't think there's much. The competition isn't the variance between the organizations, between the locations.

All right, great. Thank you. The next question comes from David McGregor of Longbow Research.

Please go ahead.

Hey, good morning. This is Joe Nolan on for David.

Joe Nolan? Okay.

Yeah, that's the parents. Okay. I was just going to start.

Welcome to the party.

What was that?

Welcome to the party.

Thank you. I appreciate it. So first, just a strong quarter for the critical industries and for the torque tools business. You've invested in some capacity there, so I assume you're shipping against some backlog orders. I was just wondering what you're seeing in terms of order activity.

The order activity is pretty good. We do have some backlog there, like always. It had been higher before. It built up, and when we put on a new expansion, we didn't liquidate the backlog, but we more normalized it. So I wouldn't call it a buildup of backlog, but the backlog's been pretty solid. So I'm pretty positive about the critical industries. And the thing about it is that it seems like we have increasing demand all the time because the idea of complex and customized kitting seems to have high demand and growing. Everybody and their brother seems to want to have a set that matches the particular problem that they have, and we can put them right on target. And we may be the only person who really does that very effectively. Plus, it includes a whole bunch of snap-on tools, which creates a whole other cache to the combined kit. So we love that business. It seems that it was up substantially in the quarter. I'm not going to give you the number, but I can tell you that business went bananas in the quarter. So I feel pretty good about it. And it's very profitable.

Yeah, that's great. And I know you guys don't provide guidance, but just thinking about that business's margins into 2025, just any of the moving parts there, obviously the strength in critical industries is a benefit for margins, so just anything more you can provide.

All I can tell you is what I tried to make in this quarter was we had two things. We basically had the tools group pivoting and narrowing the gap. Of course, it was down some, much more of a sliver than it had been down. But the results, 22.1%, up 50 basis points. And if you really looked at last year's number, you would see that there might have been some boost, some little help there from some special items like legal settlement and stuff like that in that quarter. So it was up tremendously and nicely. And that was wrought by the other two groups really having wows of quarters, profitability-wise for sure. And that profitability was rooted in the idea that they're more profitable divisions. In the case of RS&I, the software area was going gangbusters. And in the CNI group, the custom tools, the critical industries, those customized kit gangbusters. And, though, on top of it, Like I said in RCI, and this was probably missed in my comments, across RS and I, a great majority of the businesses, even the hardware businesses, were up over 100 basis points, and that was RCI, rapid continuous improvement. Going forward, what you have is good one way for those profitable businesses, and then seemingly good momentum of RCI across the corporation. I hope nobody misses that in this quarter.

Yeah, gotcha. That's great. And then just quickly on the tools group, apologies if I missed this, but did you talk about sell-in versus sell-through in the quarter?

I did not. It's about the same.

Got it. All right. Great. Thanks. I'll pass it on.

Sure.

This concludes our question and answer session. I would like to turn the conference back over to Sarah Verbsky for any closing 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. Good day.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.