Snap-On Incorporated

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, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. Please note that 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, ma'am.

Thank you, Nick, and good morning, everyone. We appreciate you joining us today as we review Snap-on's first quarter 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 the 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 counterpart. 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. As usual, I'll start by covering the first quarter, and along the way I'll give you my perspective on our results, our markets, the current environment, our position in the turbulence, how we're engaging the situation, and what we think it all means going forward. Then Aldo will move on to a more detailed review of the financials. Well, you know, these are interesting times. I don't think we've seen an interlude so packed with economic news. Government shakeups, tariff bursts, the administration declaring that there's likely to be pain before the Renaissance emerges. I mean, the hits just keep on coming. You can see that uncertainty, though, in a more formal way in the Consumer Sentiment Index. It dropped precipitously, decreasing by 30% just since December. The second lowest rating ever. And it particularly impacted the perspective of our grassroots economy, like our technician customers. It prompted an avoidance of longer payback finance items that outran the tools group pivoting to quicker payback products. It created the pause in our upward trajectory that's visible in the quarter's numbers. Our sales of $1 billion, $141.1 million, as reported, represented a 3.5% decline, including... including $13.9 million in unfavorable foreign currency translation and organic sales that were down low single digits, 2.3%, on mixed results across the operating groups. Operating income for the quarter was $243.1 million, and that compared to $270.9 million in 2024. OI margin was 21.3%, and that was versus last year's 22.9%, which, you know, I remind you, included 90 basis points associated with a benefit from the the 2024 legal win. Now, notably, the gross margin was 50.7%, up 20 basis points despite the reduced volume. In effect, our OI margin gap reflected the fact that we kept spending on maintaining and strengthening our advances in product and brand and in people, believing, as we did in the pandemic, that it's best to emerge from turbulence at full strength. And we plan to do just that. For financial services, operating earnings of 70.3 million were up 2.9 percent from last year. Still, you know, from last year's 68.3 million. So, as reported, OY margins in the quarter, including both financial services and OPCO, were 25.2 percent versus the 26.5 percent recorded last year. Quarterly, EPS was $4.51, was down 40 cents, which reflected the lower volume. and 16% from last year's legal payment, and $0.09 in higher pension amortization costs included in the 2025 number. So now let's talk about the markets. We believe auto repair is quite critical. It remains strong and continues to be a great place to operate. And the industry metrics agree. Now, some people have pointed out that hours worked are down over the last couple of months, and that's true. But there's positive news almost everywhere else. The U.S. car park on average is 12.6 years old, and it's getting old. It's old now, and it's getting older. Household spending on car repairs are up substantially, both year over year and over the trailing 12 months, and tech wages continue to rise nicely, you know, mid-single digits. Having said that, the technicians are among those who are daunted by the current turbulence. You know, many of them believe we're going to a more positive place. But they fear the economy will careen off the rails before we get there. Those people who work are part of the broad group driving the drop in consumer sentiment. But even though they're now cash rich, they fear they don't have the financial cushion for an off-the-rails event as such. And as such, they're reluctant to embrace finance products. items like tool storage boxes or top-of-the-line diagnostics, we can see it clearly in the double-digit drop in our credit company originations. On the other hand, we do believe that the techs, though confidence poor, still have an interest in quicker payback items that makes their work easier. You know, they want to make more money. So our tools group will keep pivoting to match the current preferences, working with, you know, perseverance. with focus and with confidence to restore that group's advance in closing its sales graph, just like it had established last year. So that's the vehicle, that's the tech, that's the tech sector. But also in vehicle repair, we have independent shops and OEM dealerships, approximate but distinct segment from the tech. That's the market of RS&I. The garages, those people there, continue to tool up with the latest equipment and diagnostic systems meeting the needs of their customers, getting them back on the road quickly. They know they have to invest. They know they need innovative new products, hardware and software that improve efficiency, repair efficiency and accuracy. It's an imperative to match the repair complexity of today's sophisticated and technically advanced vehicles. It's table stakes for them in the world of today, and the repair shop owners and managers will keep moving in that direction. Another opportunity in the market we've focused on is critical industries. We've termed the market critical industries. Sectors like natural resources, the military, aviation, heavy-duty fleets, where the penalty for failure is high. This is where CNI makes its money. We're offering custom solutions to reach new operations and make their critical work easier. Of course, you know, like everything, we see period-to-period challenges in our work. and variations across geographies and across segments, particularly in this time. And in the first quarter, we did see the usual pause in military business that almost always temporarily accompanies a new sheriff in the Defense Department. But after a period of dysfunction, however, the war fighters win out and the process gets back on track. But in general, this is a robust arena. and we believe the critical industries are in a place of abundant opportunity, and we believe we're growing stronger in that arena every day, connecting with more customers, using the insight to expand our product line, and extend our presence wider and deeper. So overall, I describe our markets as continuing to offer opportunities. Now, of course, this is an environment where challenges do exist, and there is turbulence, but we are confident that with our advantages and our strengthening product lines that solve critical challenges and our extraordinary brand that literally defines a professional and our very experienced team that's so enabled, we believe will prevail against these challenges. Now, now, let's briefly address the issue of the day, tariffs. Tariffs. A word that was mentioned last Friday in the Wall Street Journal 254 times. Yesterday was down to a mere 163 mentions. Paraphrasing Clausewitz, the world is in a fog of terrors. A time in which there are so many changing variables that it's difficult to see the way forward. It's an environment that will require urgent action to adjust, to optimize, and to take advantage. And we're confident in that fog. We are, of course, not immune to the challenge of tariffs, but we believe Snap-on is greatly advantaged by our manufacturing strategy to make in the markets where we sell and enable quick adjustment to changing production landscapes that are likely to happen. You know, we already have the facilities. 36 factories around the world, 15 right here in the USA, many of which we've just expanded. We're positioned well with American products. Our major product lines are already made in America using American steel. And our US plants already produce some version of almost all our product lines. What that means is no extended ramp-ups for relocated products. We already have the resident know-how right here in the USA. And for the select trades placed in America, where we use some high tariff components, We have 21 factories outside the U.S. sourcing activities in several locations, and that gives us access to a myriad of alternative sources. Finally, skilled American workers. One of the barriers to reacting to tariffs is skilled American workers are in short supply. The National Association of Manufacturers, after all, says there are 500,000 openings in U.S. manufacturing right now. But we haven't had difficulty filling positions. And we believe we can continue to do just that in the future. So we're in the flag of tariffs, but we are confident. And we believe we can engage and manage the turbulence. We're not immune to the impact, but we believe we are very advantaged. Now let's move to the segments. In the C&I group, organic sales decreased by 2.9% for all single digits. C&I's operating income was $53.2 million. below the 2024 levels by 2.2 million. But operating margins were 15.5%, a new first quarter record, up 10 basis points from last year. First quarter, remember, is always seasonally kind of weaker for CNI. In effect, though, if you think about the – this is the key point. Gross margin for CNI, gross margin of CNI in the period were 42.6%, up 180 basis points. Yes. Yes. 180 basis points. In effect, we continued OE investments to expand our advantages despite the lower volume, and it was a well-considered offset to gross margin gains, but we believe it was worth it. We're confident in and committed to extending in critical industries, and we'll keep strengthening our position with CNI as we move forward, observing the task and using those insights to design products that make work easier all across critical industries. You can see that in our TORC line-up. where precision and accuracy are essential. The aviation market, where the penalty for failure is high, continues to adapt our control tech wrenches, or what we call the C-Tech, made in the USA. built in our plant located in the city of Indonesia, California. It's an expanding presence in aviation, covering a wide range of sizes, each specifically matched to unique tasks. Aerospace makers and fixers love this product for its quality and accuracy, but the big kahuna is its ability to document the force applied to the fastener, wirelessly creating a record that, you know, a sensitive task has been completed just as specified. Now, you know, as we recently learned, This is pretty important where aircraft are involved. It's one of the reasons why it's still strong a product. Our Carroll Stream facility in Illinois produces an elite lineup of preset torque wrenches and wireless controllers. Devices that excel in any production operation, we are approving reducing network. Reducing rework, decreasing warranty needs, and just raising customer satisfaction are vital. Actually, it's pretty much everywhere. The operation is critical. So our SR controls link with the manufacturer's internal system, and they relay engineering protocols directly to the shop floor operator, identifying the right tool, confirming the task is complete and correct, storing the record, all to ensure that the right specs were applied and make sure nothing leaves the line without being fully correct. And our newly expanded Kenosha facility another one of our expansions in the United States, the CNI custom tool department makes the very difficult possible. A recent example was the aviation maintenance operation, an aviation maintenance operation that required a one-of-a-kind, abnormally long, three-inch spline socket to effectively access a very tight area in an exceptionally high-performance wing structure. Now, this is not an easy tool to make or to come by. But our customer product team in Kenosha designed it, tested it, and put it into the customer hands all in quick time, making that critical task easier with insight and speed that's only enabled by an operation close to the customer. That only such an operation close to the customer can achieve. In Murphy, North Carolina, our power tool plant launched a new combination set that was quite well received. The starter set was our PH3050B series air hammer that really packs a punch. Hitting with unwavering force, tackling heavy-duty repairs with power and speed. 2,500 blows per minute. Our specially hardened piston strikes the chisel with enough force and kinetic energy to dislodge even the most stubborn components. But the coolest part of the design is the special Kevlar disc inside the hammer's body, absorbing the shock, dramatically softening the vibrations. making it more ergonomic, much easier, and more comfortable for the operator. No more jackhammer joints. Now, in the item set, that beast hammer is paired with our most popular air chisels, hot forged for durability in our Elizabethan Tennessee plant, and kitted into a foam pallet for easy storage. It's a great package, and the techs know it. So that's CNI, a high in first quarter profit margins. delivering solutions that make work safer and easier and more productive, all enabled by American plants. Now on to the tools group. Organic sales were down 6.8%, with a high single-digit decline in the U.S., partially offset by low single-digit gain internationally. There's a difference between those markets, you notice. Opportunity income of $92.4 million compared with the $117.3 million of 2024 with an operating margin of 20%. The tools group continued to see challenges with the technicians' sliding confidence, with greater hesitancy to purchase long payback items like large tool storage buckets or big-ticket items in general. The pivot to faster payback items was gaining traction against the worry brought on by the ongoing wars, the border crisis, and the consistent inflation. But we believe the events of the first quarter drove down confidence at an accelerated rate, outrunning the continuing progress of the group's pivot. Our shift is powered by altered capacities and refocused marketing and promotion campaigns, and probably most importantly, by the introduction of innovative new products that make immediate impact with a short-term payback. products like made in snap-on factories, like our recently expanded Milwaukee, Wisconsin plant, bringing raw American steel into the back door, forging it into near-net shape, applying skill and know-how to harden and finish the steel into a final product. One example is our low-profile flank drive socket, capacity recently expanded, purposely built to navigate tight quarters, enabling the tech to beat the clock, beat the flat rate, and expedite the repair by maneuvering around instead of removing obstacles. to reach the fastener. It gets to get right around. It doesn't have to spend the time removing the obstacle. Once engaged, the patented design grips the bolt on flats and not on the corners, quickly removing the part with ease without debilitating damage to the points of the fastener. Quick payback items like our other quick payback items, like our Synergy 100-tooth ratchet, made at Elizabethan Tennessee Forge, a design that's unprecedented for strong and easy operation in tight spaces. It's now been introduced for our entire range, including our challenging-to-make, long-handled versions. This quarter, we put the synergy together with an array of those low-profile sockets, a combination that offers increasing accessibility, versatility, and reliability, a powerful match. The shops love those quick payback sets, and they're right in the current preferences for the techs. And when technicians are bouncing from bay to bay, or job-to-job, they need versatility to make speedy adjustments and remove hardware. So another quick payback hit product was our lineup of adjustable wrenches, made at our Elkmont, Alabama facility. It's the only American-made adjustable wrench on the market. It's a demonstration of U.S.-made flexibility, handling a wide range of different size fasteners with just one tool. And, you know, kind of the cool part about this is the smaller models are easy to fit in your pocket, so they're always as ready as you move from bay to bay. And for customers needing to secure their tool investments, we released our latest additions to the roll cart lineup, our KHP46. Now, this is at the bottom end of the bigger ticket items. It rolls out of our Algona, Iowa facility, and it provides a rugged and secured storage that's only 40 inches wide, making it easy to position right in the work area. But it's equipped with slides providing drawer capacity up to 240 pounds. That means it's a solid chassis that can hold everything necessary for positioning essential tools close to the workplace. In addition, the unit's top compartment can be configured in multiple layouts for managing power tools. It's got an installed 120-volt outlet and USB port that allow all text electronic accessories and cordless batteries to be charged and be at the ready. The KHP46, a roll cart that's solid, mobile, with powerful features. Sturdy storage solutions with a quicker payback. It matches the needs of, you know, confidence-poor techs that require a storage upgrade now, and it is popular. Well, that's the tools group, armed with U.S. factories, vertically integrated, with the ability to speed designs and flexibility for pivoting to short payback items determined to prevail in the turbulence. Now let's move to RS&I. Sales in the first quarter, $475.9 million, with an organic gain of 3.7%. Advancements in our diagnostics and Mitchell 1 operations, and strong double-digit improvements in our OAM markets. Operating earnings for Arsene were $122.1 million, up $9.2 million, or 8.1% from last year. And the operating margin was 25.7%. representing an all-time high for the first quarter, and that was up 140 basis points, better than 2024, reflecting a continuing software expansion and the benefits of RCI. RCI shined through the turbulence this quarter with a gangbusters performance, and it was enabled by product. Let's talk about that product in a minute. We continue to enhance our software coverage, leveraging our proprietary databases with over 500 billion data points and 3 billion repair records, numbers that are unrivaled in the industry and unrivaled in helping techs navigate and diagnose cars faster. You know, it's a lasting advantage. And keeping current with the tech's now preferences, We celebrated the 20th anniversary of our SOLUS diagnostic unit. This version, the latest version, called the SOLUS Plus. It's built in our San Jose, California production and development center. It's aimed at simplifying the complex and making tech faster at diagnosing the true failures of modern vehicles. It's our fastest hands-out with a two-second boot-up, and it's our fastest payback way to powerful vehicle diagnostics. and the techs responded to the campaign, recognizing the power and the speed of the handheld, all at a quick payback. The program was actually one of the highlights of the quarter. Later in the quarter, our Rochester Hills, Michigan facility released our all-new ProLink Thoughts platform, the handheld diagnostic platform focused on heavy-duty commercial trucks, new hardware, a faster processor, and an improved touchscreen. But the major advancement is integration with our repair database, with the repair databases of Mitchell One, putting repair procedures, vehicle specifications, and step-by-step routines for fixing the truck directly into the tech's hands. The new Michigan-based ProLink puts Snap-on in the clear lead for multi-model heavy-duty diagnostics. And Louisville, Kentucky is home to our vehicle lift plants, all types and sizes of lifts. And among the biggest kits is our Challenger CB10AB3. It's a two-post lift with the unique ability to adjust in width on the fly. It's flexible enough to be installed in any facility, in any bay, and powerful enough to handle a wide range of vehicles. You know, lifting vehicles is essential for accessing the suspension system and for making transmission setups and for EV repairs. And for a range of shop tasks, with this lift, the techs can adjust the suspended height, allowing for the best ergonomic approach to the work and bringing them closer to the work piece to execute the repair. The Challenger 334B is a great product, and everybody knows it, and it's from Louisville, Kentucky. We know this is a turbulent time, but Aris and I had a strong quarter. And we believe it's poised for more. And we keep driving to expand that group's position with repair shop owners and managers, offering more new products, develop our value creation process, and we believe it is a winning formula. Well, that's our first quarter. Quarters of both. Challenge and advancement. Gross margin, 50.7%. Up 20 basis points. Despite the volume low, the lower volumes, the tools group continues to pivot toward shorter payback items, matching text preferences. CNI penetrating critical industries, recording Q1 operating margin of 15.5%, driven by precision torque and custom solution. RSNI also recorded an operating margin record in the first quarter, 25.7% driven by software and unmatched database. The environment is interesting. We are on alert. we are confident, confident in our product, in our brand, and in our people, and confident in our ability to confront the fog with clear advantage. Now I'll turn the call over to Aldo. Aldo?